Selecting a Management System to Fit the Firm

Previously, we traced the evolution of the basic general management systems and presented Ansoff’s ‘quick and dirty’ approach to choosing a system for a particular firm. We also dealt with the problem-solving logic embodied in each of the systems. In this chapter, Ansoff’s attention turns to tailoring the system to the needs of a firm.

Systems and Structure

This chapter is concerned with formal management systems which are explicit arrangements for guiding and controlling the work of complex goal-seeking organizations. Within the USA, the prime inventor and developer of management systems has been the business firm. These inventions have occurred in response to both the growing size and complexity of internal operations and the growing turbulence of the firm’s environment.

Since the turn of the century, the challenges have become more numerous and complex, the scope of the relevant environment has expanded, and the rate of change has accelerated. From the simple strategy of ‘giving it to them in any color so long as it is black,’ expounded by Henry Ford, management tasks have expanded to include global diversification, mastering the ‘R&D monster,’ coping with external sociopolitical pressures, and responding to growing demands for redesign of the working environment within the firm.

Previous chapters traced the evolution of systems in response to these challenges. Leading firms invented the respective systems, and other firms have followed by adopting these inventions. The result of this process is an accumulation of close to a hundred years’ worth of management technology.

Since each generation of systems was designed to respond to immediate and pressing problems, the overall development appeared to lack logical continuity. Successive systems were usually advertised as inventions superior to and superseding all previous approaches. Thus, long range planning which claimed to replace budgeting was in turn replaced by profit planning, only to be succeeded by strategic planning. The latter was declared old-fashioned when PPBS (planning-programming-budgeting system) was introduced.

In the perspective of history, two facts are clear:

1.
System development has followed a coherent logic dictated by the changing character of the challenges which confronted management.
2.
The succeeding systems usually were not so much replacement as enlargements and enrichments of the preceding ones.

These facts permit us now to treat the accumulated systems know-how, not as a collection of unrelated problem solutions, but as a coherent body of design technology. Using this technology, we shall develop in this chapter a building block approach to tailoring the system to the needs of a particular firm. As the first step, we shall analyze the dynamics and the components of the principal types of system. Secondly, we shall identify common building blocks and, thirdly, use these blocks to develop a procedure for system choice.

Systems vs. Structure

As mentioned above, one primary stimulus to system development was the changing external challenges. A study of the evolution of American business firms shows that, in addition to the environmental pressures, there has always been a persistent, internally generated drive to do things better and more efficiently. The result of these two drives has been a continual flow of new approaches to doing managerial work.

The earliest systematic arrangement of the managerial work originated in the second half of the nineteenth century, when the shape of the modern firm was emerging. One of the first systems developed was standing policies and procedures, typically embodied in a manual which can still be found in all firms today. The manual contains rules for decision making (policies) and steps to be followed (procedures) for a wide variety of repetitive, predictable but contingent activities, ranging from regulation of hours of work, to leaves of absence, to conduct of union negotiations.

Another early development was a formal grouping of the firm’s logistic and managerial activities which became known as the organizational structure . The first formal structure to receive almost universal application grouped ‘like logistic activities’ in ways which permitted maximum economies of scale and specialization. During the following sixty years, this structure, which emerged around 1910 under the name of functional structure, was followed by a rich proliferation of structural alternatives, such as divisional structure , multinational structure, matrix structure, and innovative structure.

All of these organizational forms share with the functional form several common features:

1.
They specified the responsibility, authority, tasks, and relationships assigned to organizational subgroups.
2.
A structure once put in place was supposed to be ‘permanent,’ not to be changed in the foreseeable future. A change typically came after it became painfully evident that the prior structure had outlived its usefulness.
3.
For the duration of an organizational form, and except for periodic minor reorganizations, the roles, relationships, and responsibility/authority assignments were considered fixed and applying to all activities in which a particular unit was engaged.
4.
In the organizational design , nothing is said about the dynamics of work to be done within it: the division and flow of the tasks.
5.
Thus, we can characterize organizational forms of semipermanent and static arrangements for grouping the productive work of the firm and assigning managerial roles for guiding this work.

On the left-hand side of Fig. 16.1, the vertical dotted line sketches the evolution of organizational structures which will be discussed in detail in the next chapter. The figure shows that, as the firm became more complex, dynamic elements were added to the structural design such as personal planning, information systems planning, and facilities planning. These were early precursors of the need for a balanced managerial capability, culminating in the integrated capability planning concept of the 1970s.

../images/435756_3_En_16_Chapter/435756_3_En_16_Fig1_HTML.gif — Fig. 16.1
Evolution of structure and systems

On the right of Fig. 16.1 are systems for managerial problem solving . By contrast to the structure, these systems are dynamic because they specify the flows and the timing of the problem-solving work through the organizational structure . It is on the problem-solving dynamic systems that we focus the rest of this chapter. We shall refer to them simply as systems. As shown in the right-hand side, systems are almost as old as structures and they, too, developed through trial and error.

Structure and systems can be seen as complementary arrangements for doing organizational work. One provides the static ‘anatomy’ of task assignment, and the other the dynamic ‘physiology’ by which the tasks are performed through competitive effort. Curiously enough, throughout the history of the firm, this close complementarity of systems and structure was rarely perceived. It is only recently that they became recognized as complementary components of the management capability vector.

Implementation Management

In this and the following two sections, we translate the language of Figs. 15.3, 15.4, and 15.5 into language useful in the design of systems.

A useful way to analyze systems is in terms of the contribution they make to the three-basic managerial sub-processes: planning, implementation, and control. Planning establishes purposes, guidelines, strategies, and constraints for the firm. Implementation is the process of causing the firm to behave in accordance with the purposes, guidelines, and strategies. Control evaluates the organization’s performance and determines the needed adjustments in planning and implementation.

In a firm whose throughput remains stable over longer periods of time (turbulence level 1), the implementation process shown in Fig. 16.2 is the dominant management activity. It is applied on the level of a department, a functional branch, such as marketing or production, or the entire firm. It consists of observation of how the unit has complied with previous instructions (compliance monitoring) and evaluating this information in terms of the need to issue further instructions (implementation decision). The box labeled ‘action instructions ’ is a simple name for a complex management activity. It includes a twofold process of communicating to members of the unit the assigned tasks and—equally important—bringing about a willing acceptance of the instructions. This activity is one of the most difficult parts of the manager’s job, entailing the intangible quality of leadership.

../images/435756_3_En_16_Chapter/435756_3_En_16_Fig2_HTML.gif — Fig. 16.2
Implementation management

The implementation cycle depends on a personal assessment of progress, usually qualitative, made by the responsible managers. It may be adequate when the work of the units does not change over time, and all units are independent of one another.

Control Management

A control procedure, added to the implementation, is the next step in complexity of management. This is shown in Fig. 16.3 with the newly added steps indicated by the double-lined boxes. At this stage, the concept of performance measurement is introduced. To the previous qualitative assessment of how when the unit is applying itself to its tasks, control adds quantitative measurement and evaluation of what was accomplished. To facilitate this evaluation, historical experience is used to establish norms, quotas, and standards augmenting the personal judgments of the manager. The difference between performance and the standards produces a control signal. A control decision is made and then translated into action instructions . Unlike in implementation management , which is qualitative, the action instructions in control management are both qualitative and quantitative. Furthermore, the quantitative record of performance also permits periodic revisions of the quotas and standards.

../images/435756_3_En_16_Chapter/435756_3_En_16_Fig3_HTML.gif — Fig. 16.3
Historical control management

Thus, the control cycle augments rather than replacing the implementation cycle . Subjective judgment about the quality of performance and human attitudes in the latter is an important adjunct to quantitative measurements in the former.

This rather simple system was an important step in the evolution of formal management. It introduced objective measurement of performance, provided a tool for diagnosing and locating weaknesses, and a method for comparing the effectiveness of different units of the firm. Today, the historical control system is one of the indispensable (although, as we shall discuss below, obsolete) tools of management in large and complex firms.

The historical control system has obvious shortcomings. Since quotas and standards rest on experience, and since past performance is measured, control actions are geared to the history, rather than the future of the firm. Management by control thus inhibits aggressive, forward-looking exploitation of future opportunities.

Extrapolative Management

The next important development was the extrapolative management system shown in Fig. 16.4. The newly added boxes are indicated by the doubled outlines.

../images/435756_3_En_16_Chapter/435756_3_En_16_Fig4_HTML.gif — Fig. 16.4
Extrapolative management

The fundamental difference between control and extrapolative management is that the former is based on historical experience, whereas the latter is based on extrapolation of the past into the future.

1.
The first step is to use the historical trends as a basis for environmental forecasts of future trends in population, economy, technology, competition, and other factors. Using these performance forecasts , growth and profitability trends of the firm are prepared.
2.
The second step is to compare the environmental and performance trends and to select goals for the firm. These are usually set above the performance trends in order to stimulate improvements on historical performance.
3.
The third step is to convert the goals into coordinated action programs for various units of the firm. These programs specify schedules of actions, checkpoints, and milestones.
4.
The action programs are then translated into resource budgets in terms of men, materials, money, and space needed to support the programs.
5.
The action programs and the resource budgets form the basis for profit budgets —measures of the net cost-effectiveness.
6.
The final step in planning is to check feasibility—that is, to determine whether the projected results are satisfactory to the management and also whether the total resources needed by various units of the firm (money, borrowing power, executive talent) are available.

This simple-sounding set of activities turns out, in reality, to be difficult and complex. In part, this is because extrapolative management requires acquisition of a great deal of new information, development of new measurement techniques, and of scheduling and evaluation procedures. Moreover, extrapolative management requires active participation and support of all levels of management and supervision. To be effective, 1 it requires up, down, and lateral coordination, as well as leadership and support, from top management. But, most importantly, it requires a shift of the firm’s mentality from an emphasis on the past to anticipation of the future.

As the figure also shows, programs and budget must be implemented and controlled. But both of these functions can now become forward-looking, based on what is to be done in the future and not on the results of the past. In forward control , emphasis shifts from deviations from the historical performance to measurement of the remaining difference between accomplishments to date and the goals which must be met by the end of the planning period. Correspondingly, implementation shifts from correcting historical errors to actions directed at meeting future goals.

As the figure shows, the control decision now has two possible options: (1) to correct performance or (2) to modify the goals if performance evaluation shows that the previously established goals are no longer realistic.

Figure 16.4 shows a popularly used extrapolative management system called long range planning (LRP). For reasons which will become apparent, we shall refer to the management system shown in Fig. 16.4 as coherent long-range planning. Several other extrapolative management systems have evolved and have been used in practice. Among these are the following:

Long-term budgeting. This system does not make performance forecasts nor does it set performance goals. Instead, it periodically budgets resources allocated to the principal established activities of the firm. A flow diagram of the budgeting system can be obtained from Fig. 16.4 by deleting the environment, performance forecasting , goals, action programs , and profit budget boxes.
We shall refer to an early version of long-term planning (LTP) as anomalous long-range planning . In this approach to planning, while the goals, programs, and budgets are focused on the future, the control system remains historic. In terms of Fig. 16.4, this means that the ‘control decision’ box is not connected to the ‘goals’ box.
Another variant of the extrapolative management system, which we shall call innovative long-range planning, was invented in firms which were engaged in intensive product development activities and found that the historical approach of partitioning the firm’s innovative process among the functional units of the firm was ineffective. As a result, such firms created project management units responsible for the innovative process.

In innovative long-term planning, two parallel extrapolative management activities are used. One set of activities is used for the operations of the firm’s functional units, and the other for innovative activities executed by the project units.

If market demand remains structurally unchanged, if the firm’s technology is long-lived, and if competitive structure and dynamics are stable, extrapolative management is the appropriate technique for managing the firm’s future (on level 3 turbulence ). However, if the firm faces saturation or decline of demand, or basic changes in the structure of its markets, or technological breakthroughs , or significant changes in the social/political environment, extrapolative management becomes not only an ineffective, but even a dangerous basis for managing. In response to these dangers, firms in the 1960s developed a more complex type of system which we shall call entrepreneurial management.

Entrepreneurial Management

In entrepreneurial management , a complex outer loop, shown in Fig. 16.5, is added.

../images/435756_3_En_16_Chapter/435756_3_En_16_Fig5_HTML.gif — Fig. 16.5
Entrepreneurial management (project management, strategic planning , strategic posture planning , issue management )

First, extrapolative projections of the firm’s present product/market position are replaced by non-extrapolative analysis of environmental trends and of probable threats and opportunities .

The trend and threat/opportunity analysis are combined into an estimate of the future prospects which will be available to the firm in the manner which was discussed in previous sections.

The analysis involves studies of: economic and social forces which determine demand for the firm’s products; the nature of the competitive forces which operate in its markets; and prospects for political and social changes which will affect the company and its environment. In technology-intensive industries, analysis of technological prospects is of particular importance.

Another new activity is a capability diagnosis analysis, which determines the profile of the capabilities of the firm.

Redefinition of the objectives of the firm becomes a subject of major concern when the firm moves from extrapolative to entrepreneurial management .

In extrapolative management , the objectives (dimensions of performance by which the firm’s success is judged) remain stable over time, and the planning process starts with goals (levels of performance sought for the respective objectives).

In entrepreneurial management , the prospect of turbulence, discontinuities, and changing power alignment among influential stakeholders in the firm all make it necessary to redefine the objectives to which the firm aspires. A typical result is to change the relative priorities of the historical profit/growth objectives and to add flexibility and societal objectives .

The strategic gap between the objectives and the prospects is determined in the box labeled ‘search decision ’. If the gap is acceptable to management, the next step is to set the goals which the firm will pursue for each of the objectives (see the box labeled ‘goals’).
If the gap is unacceptable, the next step is to start a search for new strategic alternatives. As discussed in Part II, this may involve search for new competitive postures , or new SBAs or both.

As was discussed in Part II, the present capabilities of the firm are one of the important factors which direct the search.

The action decisions dictate the shape of the new portfolio and appropriate competitive postures.

The prospects of the new portfolio are evaluated, new goals are set, and budgeting/implementation follows.

As Fig. 16.5 shows, under entrepreneurial management , the control function has four important options: (1) to correct performance, (2) to require a change in goals, (3) to require a re-examination of strategy, and (4) to require reprogramming of operations. These respective options are indicated by numbers 1–4 near the lines leaving the control box. Thus, in entrepreneurial management , control becomes not only forward but also strategic. Entrepreneurial management adds an outer strategic analysis loop to the extrapolative planning system. Its output is a set of new goals which are now based on analysis and not on extrapolation as before. These goals will be of two kinds: operating goals for near-term profit making and strategic goals for strategic development of the firm.

System Building Blocks

As shown in the captions of Figs. 16.3, 16.4, and 16.5, the control, extrapolative, and entrepreneurial management systems are basic types of systems. Each represents a family of systems shown in the caption of the respective figures. Within each type, the specific systems share a distinctive perception of the future environment of the firm.

The control type assumes that the environment will change incrementally and slowly enough to leave sufficient time for after the fact response.
The extrapolative type assumes that the future will be an extrapolation of the past that the change will be incremental, but too fast to permit after the fact reaction.
The entrepreneurial type assumes that future events will be discontinuous from the past.

The figures show that, although different in intent, the systems are built of building blocks which perform identical functions in each system. These blocks are:

Information input.
Implementation (a combination of implementation decision and action instructions ).
Control (control decision plus performance evaluation).
Budgeting (profit and resource budget ).
Programming.
Planning (objectives, goals, search decision , search for alternatives, analysis, action decision).

*Choosing the System for the Firm

The left-hand column in Table 16.1 shows ten distinct management systems. All but one (surprise management) can be found today in business practice. As discussed previously, control, budgeting, anomalous , coherent long-range planning, and innovative long-range planning are widespread, and quasi-strategic planning , strategic planning, and strategic management are less widespread, but their use has been growing during the past ten years. Issue management is now receiving increasing attention, particularly in the USA, EU, and Asia.

Table 16.1

Typology of practical systems

System	Information	Implementation	Control	Budgeting	Programming	Decision-making
1. Control	Historical	Units	Historical	–	–	Corrective action
2. Budgeting	Extrapolative	Units	Historical	Short term	Milestones	Goals
3. Anomalous LRP	Extrapolative	Units	Historical	Long term	Programs	Goals
4. Coherent LRP	Extrapolative	Units	Forward	Long term	Programs	Goals
5. Innovative LRP	Extrapolative	+Projects	Forward	+Project budgets	+Project plans	+Projects
6. Quasi strategic planning	Environmental surveillance	+Projects	Forward	+Issue budgeting	+Project plans	+Issues
7. Strategic planning	+SBA prospects	+Projects	+Strategic	+Strategic budget	+Project plans	+Objectives +Strategies
8. Strategic management	+Internal surveillance	Change management	+Strategic	+Strategic budget	+Project plans	+Capabilities
9. Issue management	Singular events	Projects	+Strategic	Issues	+Project plans	Issues
10. Surprise management	Historical	Projects	+Strategic	Projects	Project plans	Damage repair

Listed across the top of Table 16.1 are the six system building blocks which were identified in the preceding section. The entries describe the characteristics of each building block which are found in the respective systems. The first step in selecting the future system for a particular firm is to identify its present system.

With the exception of the anomalous long-range planning, all of the systems shown in the figure are balanced, which means that the building blocks match and support one another. In the anomalous long-range planning, planning is extrapolative but control is historical.

In practice, it may turn out that the firm’s present system is unbalanced. This will become evident if the diagnosis does not fit into a single line or fits in the commonly observed line 3. Other observable examples of imbalance are strategic planning systems which lack a fully developed environmental surveillance input, or informal issue management systems which lack a decision-making structure.

Shown across the top of Table 16.2 are conditions which determine the type of system needed by the firm. The first two columns describe the characteristics of the environment, and the second two the contributions the system makes to management of the firm.

Table 16.2

Choice of systems

System	Turbulence level	Environment	Problems solved	Contribution to management
1. Control	1	Repetitive	Complexity of work	Control of deviations
2. Budgeting	2	Expanding	Long lead times	Resource allocation
3. Anomalous LRP 4. Coherent LRP	3	Fast expanding	Rapid growth	Coordination of growth, management of profitability
5. Innovative LRP	3.5	Technological fertility competitive turbulence	Incremental adaptations	Management of incremental innovations
6. Quasi strategic planning	3.5	Fast expanding predictable discontinuities	+Response to discontinuities	+Management of turbulence
7. Strategic planning	4	Mixed discontinuous prospects	Strategic positioning	Management of strategic innovation Strategic coherence Strategic allocation of resources
8. Strategic management	4.5	Novel discontinuous prospects	+Capability development	Management of discontinuous strategic change
9. Issue management	4.5	Partially predictable surprising events	Avoidance of surprises	Management of partially predictable change
10. Surprise management	5	Surprises	Recovery from surprises	Orderly response to crisis

The second step in selecting the system for a firm is to identify the line in Table 16.2 which will best respond to the needs of the firm during the next five to seven years. This is done by identifying the turbulence and environment conditions (in columns 2 and 3) which best describe the firm’s future environment. A reader who has performed the turbulence diagnosis will have already performed this identification.

As Table 16.1 shows, systems l–8 are progressively complex approaches to comprehensive management of the firm’s future. Systems 9 and 10 complement the preceding ones in responding to singular events. Therefore, the firm’s choice may include one of the lines from 1 to 8, plus 9, and/or 10.

Further, as you may recall from prior chapters, the firm may choose different management systems for different parts of the firm.

*Quick Readiness Diagnosis

As discussed in detail previously, the management system, even if it is responsive to the firm’s needs, will be ineffective if other components of capability do not support it. Therefore, the choice of the preferred management system must be accompanied by a diagnosis of the state of readiness of the capability components. This may be a comprehensive strategic diagnosis or, as a minimum, by the quick readiness diagnosis shown in Table 16.3.

Table 16.3

System readiness diagnosis

../images/435756_3_En_16_Chapter/435756_3_En_16_Tab3_HTML.gif

The scale from 0 to 10 on the right-hand side of the figure is a measure of progress toward the capability profile which must be in place if the new management system, selected in the preceding sections of this chapter, is to be fully effective.

A value of 10 denotes a component which is ready to respond to the future needs of the firm. Zero denotes a state of the component which has nothing to contribute to the ultimate need. For example, a mark of O for the information base (item 5 in Table 16.3) means that no start has been made toward defining the information system which will be needed to support the new management system.

The left-hand profile shown by the crooked line in the figure illustrates the readiness of the present capability profile. This is in comparison with the straight line of all 10s, indicating that all components are fully ready to support the preferred future management system.

As the strategic diagnosis illustrates, the quick readiness diagnosis identifies the gaps between the present and the desired state of the management capability. The difference between the two procedures is that one is an elaborate, in-depth analysis, and the other is a ‘quick and dirty’ check on the state of the respective capability components, based on summary judgments and carried out by the managers responsible.

Roles and Responsibilities in Design and Use of Systems

During the era of long range planning , the principal functions of the planner were: (1) to provide forecasts; (2) to design and to install the system; (3) to monitor its operations; and (4) to coordinate and to integrate plans prepared by working managers. Thus, the working manager planned while the staff planner supervised the planning process.

Today, although process management has become even more important, the higher forms of planning demand a substantially expanded contribution from the planner.

As a result, planning and control staffs have been expanding in size, scope of responsibilities, and the range of competence and skills. Table 16.4 presents an up-to-date listing of the planning work required in a sophisticated strategic planning system.

Table 16.4

Functions of a planning and control staff

Capability development	Decision analysis	Process control	Performance control	New venture management
Design of organizational structure	Environmental surveillance	Coordination of planning	Measurement of performance	Identification of opportunities
Design of planning systems and procedures	Forecasting threats and opportunities	Integration of plans	Diagnosis of deficiency	Analysis of opportunities
Management development modelling	Capability analysis	Evaluation of planning systems	Generate corrective actions	Acquisition and development of opportunities
Revision of planning systems	Generation of alternatives	Evaluation of plans	Analyze corrective actions
Implementation of planning support systems	Analysis of alternatives		Monitor corrective actions
Introduction of planning systems

This broad scope of activities suggests that it is no longer helpful to characterize ‘the planner ’ in the singular, since there is more planning work than an individual can handle. Also, the new range of work requires a variety of knowledge and skills rarely found in a single individual. The traditional systems designer-expediter is still needed, but also required are the entrepreneurially minded new venture analyst, the analytic diagnostician-controller, a skilled forecaster-analyst, the computer model builder, and a skillful capability planner.

There is an important distinction to be made between these staff activities of the planning workers and the result-producing responsibilities of line managers. The responsibilities of the latter, as found in practice, are the following, to:

1.
Assure that the management system is appropriate to the needs of the firm.
2.
Assure that planning is integrated with implementation and control.
3.
Make the necessary decisions and commitments in the course of the planning process.
4.
Guide and control the implementation.
5.
Assure that the firm attains the results specified in the plans.

Organizational Flow of Planning

In the early days, it seemed that the advent of formal planning would lead to the centralization of decision power. Early systems designers visualized that, eventually, all important planning decisions would be made in the corporate office , with the aid of high-speed computers.

Very quickly, this solution proved unworkable in practice. When centralized planning was attempted, the planning process became separated from the realities of day-to-day action; plans were neglected and disregarded by managers responsible for carrying them out; planning became largely an academic exercise. A decentralized planning concept emerged which directs that plans should be prepared by individuals responsible for executing them. Because this produced better results, it has been adopted in general practice.

Application of this principle makes it necessary to match systems decision points to the implementation responsibility points. But another problem arose: In what direction should planning flow? From the top of the firm down, or from the bottom up?

Since the entrepreneurial and social decisions are the higher-level decisions within which programming and budgeting must take place, the flow must start with strategic guidance from the top. But global guidance must be tailored by strategic inputs from the SBUs . As a result, the flow of planning in an effective system is neither top-down nor bottom-up. Instead, it combines the two flows and permits a constructive interaction between integrating guidelines from the top and entrepreneurial initiatives from below.

A new dimension of complexity is added in a multinational structure where divisions are typically replaced by product groups, and a new structural dimension of countries is added (see the next chapter). The directional flows of planning can be modified easily enough to add the country dimension, but the location of the strategic decision responsibility becomes unclear: Both countries and product groups have responsibility as well as important inputs to the strategic process. At the present time, three approaches to resolving the responsibility problem are found in practice:

1.
The product groups are designated strategic business units (SBUs) and made responsible for strategic decisions; the countries contribute and consult.
2.
Strategic plans are arrived at through shared authority /responsibility.
3.
SBU responsibility is assigned according to the relative size and importance of the country market. When the latter becomes large enough to justify a separate product-line strategy, the SBU responsibility is shifted to the country.

The Human Dimensions of Systems

Early applications of strategic planning ran into resistance to planning both from line and staff managers. As systems became more sophisticated, the resistance to planning persisted.

The early solution for overcoming resistance to planning , offered in the literature, was to secure enthusiastic support from top management. Given the high degree of technological sophistication in modern planning, this is a strangely naive prescription: ‘if managers do not plan willingly, threaten them with the displeasure of the big boss and tell them that he loves planning.’

An understanding of the causes of the resistance and more sophisticated ways of coping with it are now available. This understanding recognizes the profound social, psychological, and political ramifications of new systems which bring about a basic change in the way the firm perceives the environment, conducts its business, and distributes power among managers. Subsequent sections explore the origin of resistance to change and what can be done about reducing and managing it.

Contemporary and Future Trends

Given the history of and the rapidly changing challenges to the firm, it is certain that management systems will undergo major changes in the future. Several of the basic trends are already visible, as outlined below.

Tailored systems . In the past, a majority of firms put new systems in place when the preceding system no longer responded to the needs of management. Firms typically ‘bought’ a ‘standard’ system offered by one of the consulting firms or described in literature.

Today, the state of knowledge is at a point where it is possible to anticipate the future system needs and to tailor the system to the needs of the firm. Indeed, firms can anticipate their needs, tailor the system to them, and further develop plans for evolution of their systems over time.

Multi-systems . Most firms today find themselves operating in several environments which need different systemic responses. As a result, the presently monolithic concept of the single system for the entire firm is already giving way to a multi-system concept. Different parts of the firm will be encouraged to develop systems which meet their needs, but to design them to be compatible in a manner which permits consolidation and comparison at the corporate level.

Corporate capability perspective. Increasingly, as the strategic management perspective gains acceptance, management systems will be integrated into the overall concept of corporate capability. In particular, the intimate relationship between structure and systems will become recognized, and a combined dynamic-static concept of what we might call strystems will develop.

Planner vs. capability manager . The integrated capability perspective will lead to a closer relationship and cooperation among corporate staff functions (information, management development, organizational design , corporate planning, accounting, etc.). In the development of this relationship, the planner will be a strong contender for the ‘chief of staff’ role, responsible for harmonizing development of the corporate capability.

Sociopolitical perspective . Until recently, all systems were focused on the economic-technological-competitive behavior of the firm. Concern with sociopolitical variables is already evident in internal social audits and external scenarios. This concern will grow in three directions:

1.
Adaptation of the systems to the new sociopolitical realities of worker participation within the firm and growing influence of external constituencies , such as consumer groups.
2.
Broadening of strategy formulation, programming, and budgeting to take account of the sociopolitical variables which impact on the profit-making ability of the firm.
3.
Enlarging systems to include systematic management of the firm’s social responsibility and of concerns with the firm’s ‘legitimacy.’

Treatment of uncertainty and unpredictability . It is a curious fact that the prospects analysis in advanced systems has become increasingly divergent, seeking to capture the uncertainties and the differences among the possible futures (e.g. scenario analysis), while the decision processes have remained convergent, seeking to select the single course of action which the firm should follow. This has been particularly evident in the currently popular technique of portfolio analysis. In the future, increasing attention will be paid to matching the flexibility of the strategy to the uncertainty and unpredictability of the prospects. Earlier, we introduced a method of preserving a clear view of the future uncertainties in strategic portfolio analysis . This will lead to the concepts of adaptive strategy, greater emphasis on flexible progressive commitment, and increased use of strategic control .

Real-time systems. Until recently, all of the decision systems were periodic, operated usually on an annual planning cycle. In subsequent sections, we shall be discussing a new family of system designs which respond to challenges as they are perceived.

Flexible systems . Both flexible progressive commitment and real-time responsiveness of the firm depend on its flexibility. It is interesting to observe that, for reasons which were valid at the time, the design philosophy of systems, as well as of logistic facilities, was focused on single-purpose, low-cost designs. The current flexibility evolution, which is taking place on the shop floor, will spread to management. Management capability, including systems, will progressively become more flexible.

Summary

There are two organization-wide formal arrangements for organizing and directing management work: static structures, which assign tasks, authority, and responsibilities, and dynamic systems which prescribe the flow and the manner in which the tasks are to be performed.

During the twentieth century, three archetypal systems evolved: Control, which guides the firm on the basis of the historical performance, the extrapolative system, which is forward-looking and based on the assumption that the future can be predicted through extrapolation, and the entrepreneurial system, which expects the future to be discontinuous and surprising.

Each of the systems is made up of six building blocks: information, implementation, control, budgeting, programming, and planning decision.

These blocks are used in this chapter to describe ten practical systems, one for the control archetype, four for the extrapolative, and five for the entrepreneurial. Each system is uniquely suited to a particular environment and to particular needs of management. The system needed by the firm can be chosen by diagnosing the environment and the problems of the firm’s management.

The evolution of increasingly complex systems has correspondingly broadened the demands on the planning staff which progressively became responsible for designing the systems, providing decision analysis and control data to line management, and participating in new venture identification and analysis.

The early arguments about centralization vs. decentralization and top-down vs. bottom-up flow of planning have been resolved through experience in favor of making implementers also responsible for planning and in favor of two-way flow of planning. When a substantial change in the management system is contemplated, it is advisable to perform a readiness diagnosis and arrange transition to the new system in a way which minimizes resistance and guarantees its acceptance by the organization.

Management systems are still in a process of evolution. Already visible are the trends toward tailored systems , several different systems within a firm, fusion of systems and structure into a concept of ‘strystems ,’ emergence of the planner as the ‘chief of staff’ for capability development, broadening of systems to capture the sociopolitical perspective, emergence of adaptive and flexible strategies, and of real-time systems.

Exercises

1.
The discussion in this book is focused on systems for the business firm. Which, if any, of the systems in Table 16.1 are applicable to: (1) hospitals, (2) churches, (3) universities, (4) the Congress of the USA, and (5) the White House? What additional characteristics should the systems possess to be useful in the respective institutions?
2.
What problems and what resistance would be encountered in introducing the systems in exercise 1? What can and should be done to gain acceptance for the systems?
3.
Under ‘corporate capability perspective,’ the concept of strystems is introduced. Define a system and construct an example. What advantages are offered by the concept of strystems?
4.
What should be the future role of the corporate planner? What should be his responsibilities? What qualifications should he bring to his job?
5.
Using an organization familiar to you, or a case assigned by your tutor, use Table 16.1 and to diagnose the present management system and to select the system which will be needed by the firm in the future.
6.
Specify the changes which will need to be made in the present system. Who should be responsible for making them?
- Using Table 16.3, perform a system readiness diagnosis on the organization used in exercise 5.
- What changes should be made in the firm? Who should be responsible for them?

16. Selecting a Management System to Fit the Firm