A beautiful excerpt from Herbert Simon’s Strategy and Organizational Evolution:
Anticipating the future means detecting, preferably prospectively,novel features in the environment that may affect the firm significantly in the future, and determining at what point in time attention should be focused on them and energy devoted to dealing with them. The available management time and attention is never sufficient to deal with all the contingencies that may arise; relative priorities for attention, planning and action need to be revised continually. A major function of strategic planning is to conserve scarce managerial, engineering and science attention for the things that matter. …
Large organizations are plagued by a kind of Gresham’s Law: the pressures of everyday activities and of crises drives out planning. Short-term concerns create priorities and deadlines that absorb managerial attention and energy at the expense of long-range concerns. The obvious remedy for this universal problem is to create special organizational units whose sole responsibility is to handle various facets of the strategic planning activity. With such a definition of its base function, such a unit has no excuse to be diverted.
There are two reasons why creating specialized planning units does not automatically repeal Gresham’s Law of Planning. First, if the planners are sagacious and effective, they are sure to experience increasing demands on their time for advisory services to top management and to other divisions across the organization. They will have to be very strong-minded indeed to ward off these interruptions of their mainstream activities, and not to find themselves increasingly entangled in short-run deadlines.
Second, the more tightly a planning group is sealed off from the day-to-day affairs of an organization, the more difficult it becomes for its plans to influence company operations. Participation of many organizational members in the strategic planning process is the surest way of securing the dissemination of ideas that is the basis for implementation; and isolation of the planning activity from the rest of the organization greatly complicates the process of dissemination, among other reasons because those who have not participated in the process will find it hard both to understand and to accept its product.
The problem of isolation of the planning unit arises not only in general strategic planning but in the development and introduction of new products as well. One of the advantages that Japanese manufacturing firms have exploited in their international competition is the speed with which ideas for new products or product improvements are converted into actual production lines. Observation has shown that this speed is possible because manufacturing engineers and even sales engineers participate in the design process almost from the beginning. This enables design engineers to take manufacturing constraints and convenience into account in the designs. Conversely, it involves the manufacturing staff in the product from the outset, secures their commitment to it, and enables them to begin planning the manufacturing operations while design is still going on. At the same time, of course, this procedure does shift some of the attention of design engineers to manufacturing problems and perhaps creates a danger that they will be diverted from their basic responsibility for product innovation.
As in most matters of organization, what is called for, in order to secure a proper attention to strategic planning but at the same time maintaining strong communication links between planning and operating units, is balance, and top management attention to maintaining that balance. On the whole, it is probably unwise to allow specialists to make their whole careers in planning, while others spend their carers in line responsibilities. Some rotation, even at some short-run expense to expertise, can do a great deal to disseminate the products of strategic planning, while keeping planning units in touch with the realities of the world of operations.
Institutionalizing intelligence activities
How can a firm organize so that it will scan the horizons with sufficient vigor, identifying potential problems and potential opportunities? It is no accident that the eyes and ears are located on the surface of the body and not in its interior. Intelligence requires continual contact with the relevant environments, and in the case of business firms two of the most relevant and important environments are the end-use (customer) environment and the science and technology (research and development) environment. Other parts of the firm should not be excluded from the search for information, but these are perhaps the two most important in it.
The marketing function is not simply a function of selling and distributing products to customers. It is equally a function of acquiring, through contact with the end-use environment, information about the future of the firm’s markets and of markets into which it might enter. Salesmen and sales engineers may play an important role in this intelligence activity, but only to the extent that it is an explicit part of their function, they are trained to do so and they are linked effectively in communication with top management, planning and design units. Specialized units may also provide various kinds of intelligence—products of customer polls, for example. I shall not attempt to describe in detail how one organizes intelligence about the end-use environment, but simply call attention to its importance.
Research and development organizations are commonly thought of as aimed at inventing and developing new products, but this is only a small part of the function they should perform. Just as sales organizations are windows on the world of customers, so R&D organizations are (or should be) windows on both the world of nature and the scientific and engineering communities that are engaged in examining nature. A scientist or R&D engineer is not merely an inventor but also a channel of communication between the company and the discipline in which he or she works.
Scientific disciplines operate as huge blackboards (collections of journals and books, professional meetings) on which the discoveries of all of the participants are recorded. Only a tiny fraction of the knowledge that any one scientist holds, including very new knowledge, was produced by his or her research or the research of the home laboratory. Most of it was read off the blackboard. Thus, the knowledge that a company R&D department produces should be not only the product of its own laboratory effort, but also the whole body of relevant knowledge that it obtains from the blackboards belonging to is professional domains.
Too great a preoccupation with the patentable products invented by the R&D department will obscure its broader intelligence function, and restrict its contribution to the strategic planning effort. The NIH (‘not invented here’) syndrome is endemic in R&D organizations that do not understand that their intelligence responsibilities extend far beyond their laboratory research programs.
Companies in industries where there is a rapid turnover of products (clothing and pharmaceuticals are salient examples) usually take conscious pains to organize their intelligence activities. If they did not, they would not survive long. They are prime examples of organizations where success at a particular time will be short-lived unless it is followed continually by new successes. To the extent that they can patent new products or develop brand-name loyalties, they may be able to buffer to some extent the volatility of their environments. But basically they live, not by making isolated innovations, but by organizing to produce a steady stream of innovations. Without strongly developed intelligence capabilities, they are unlikely to be successful at this.
Strategic planning is aimed at dealing with the enormous uncertainty and constant change that modern organizations find in the environments to which they must adapt. A market ‘niche’ is typically a transient thing. Statistics of firm growth show that special firm advantages typically have half-lives measured in a few years rather than in decades or generations. The task of strategic planning is to assure a stream of new ideas that will allow the organization to continue to adapt to its uncertain outside world.
In my remarks, I have tried to view the strategic planning function in its broader setting of the whole decision-making process in an organization. Making choices and evaluating them are simply the final stages in the decision process, and seldom the most important stages. Before choices are made, the occasions for choice must be identified, effort must be focused on problems or opportunities and possible courses of action must be designed. Classical decision theory has relatively little to say about these crucial initial stages of decision but students of strategic planning have become increasingly aware that problem identification and alternative generation are crucial components of strategy. Cognitive science and artificial intelligence have learned a great deal about these processes in recent years, and are becoming important sources of ideas for planning theory and practice.
Strategic planning will not happen by itself, or even if we simply set up organization units formally charged with doing it. The planning effort will be effective only to the extent that it permeates the entire organization and only if its products are disseminated effectively. A central idea (call it a ‘mission’ or a ‘company goal’ or ‘basic principles’), embedded in many heads where it is evoked on the occasion of decisions, is more crucial than an elaborate written list of things that are somehow supposed to happen. Organizational identification, essential to the implementation of strategic plans, is a good deal more than simple loyalty. Identification implies absorption of strategic plans into the minds of organization members where they can have direct effect upon the entire decision-making process, starting with the identification of problems, continuing with the design of alternative courses of action, and leading ultimately to effective implementation.
If you’re interested in learning more about Herbert Simon, I recommend reading Models of My Life. Also, if you liked this article you’ll like Solution by Recognition and Choice Under Uncertainty.