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«Long Range Planning 41 (2008) 248e272 Rise and Fall - or Transformation? The Evolution of Strategic Planning at ...»

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Long Range Planning 41 (2008) 248e272 http://www.elsevier.com/locate/lrp

Rise and Fall - or


The Evolution of Strategic Planning at the

General Electric Company, 1940e2006

William Ocasio and John Joseph

We challenge conventional accounts of the rise and fall of strategic planning by examining the

history and evolution of strategic planning practices at the General Electric Company (GE)

during six CEO regimes: Wilson, Cordiner, Borch, Jones, Welch and Immelt. We distinguish strategic planning d a system of strategy formulation, decision making and control d from particular planning technologies such as SBU planning. We show how an integrative system of strategic planning was first established in GE in the 1950s and continues, albeit transformed, to this day. Integrative strategic planning at GE was originally called long range planning, later strategic planning, and after the abandonment of SBU planning, GE’S Operating System, but changes in the use of labels mask continuities in prevailing practices. The history of strategic planning at GE has several implications for contemporary strategy making: first, the practice of strategic planning cannot remain static but must evolve to facilitate changes in corporate agenda and management style. Second, the CEO’s involvement in design of the strategic planning system is critical to its endurance and centrality. Third, specialized governance channels for decision-making and communications focus attention of corporate executives on distinct, yet critical, planning tasks to shape the corporate agenda. Finally, the tight coupling of information and communication flows across governance channels is critical for the overall integration and effectiveness of the strategic planning system.

Ó 2008 Published by Elsevier Ltd.

Introduction The role and importance of strategic planning in corporate practice remains a subject of controversy for both academics and practitioners. Hailed as a critical corporate function during the 0024-6301/$ - see front matter Ó 2008 Published by Elsevier Ltd.

doi:10.1016/j.lrp.2008.02.010 late 1960s and 1970s, its effectiveness came under attack in the 1980s and 1990s.1 The decline of corporate staffs during the 1980s was widely reported in the business press, even though at the same time strategy consulting firms flourished and expanded in size and offerings. Hamel, Prahalad, Pascale and have others questioned the contribution of strategic planning to firm innovation and global competitiveness, and these critiques culminated with Mintzberg’s influential and awardwinning 1994 treatise The Rise and Fall of Strategic Planning, which focused on the failings of formal planning processes and described its widespread abandonment.2 Yet the topic of strategic planning remains visible in the research literature, with almost 900 papers on the subject being published since 1995.3 Recent studies suggest that strategic planning is not extinct, but that it has evolved in response to dynamic environmental conditions.4 However, if strategic planning is not ‘dead’, in what form has it survived? How has strategic planning practice changed?; how is it practiced in large corporations today? and can formal strategic planning still benefit large, multi-business corporations?

Recent studies suggest that strategic planning is not dead: but in what form has it survived?

To help answer these questions, we study the history and evolution of strategic planning at the General Electric Company (GE). Since the early 1970s - if not earlier - GE has been a model and archetype for effective strategic management practices, and the introduction of portfolio planning and the implementation of the strategic business unit (SBU) concept by then-CEO Fred Borch in the early 1970s has led the company to be considered as an early developer of corporate strategic planning. This was further developed under his successor, Reginald Jones, and the GE strategic planning system was promoted as a best practice for diffusion to other corporate settings. However, strategic planning at GE is widely viewed as having been substantially abandoned under Jack Welch, when he decimated strategic planning staffs at the corporate and business unit levels, and focused instead on corporate-level initiatives, such as restructuring, cultural change and Six Sigma.

Based on the highly visible changes under Borch, Jones and Welch, Mintzberg characterizes GE as FIFO (first in-first out) as far as strategic planning was concerned, and widely emulated both in its adoption of a formal strategic planning system, and its abandonment. Under Jeffrey Immelt, the importance of strategic planning appears to have grown once again, with the role of strategic planning now highlighted as part of GE’s growth strategy and corporate governance practices. Does GE’s practice of strategic planning conform to Mintzberg’s characterization, or to those of other strategy scholars?5 Given GE’s prominence as a widely admired model of effective management, we seek a clearer understanding of how strategic planning evolved at GE, and to provide insights on the broader question of its rise, fall and transformation in other large multi-business corporations.

To understand the evolution of strategic planning at GE, we examine the history of corporate and business-unit planning under the regimes of six CEOs from 1940 to the presentdCharles E.

Wilson, Ralph J. Cordiner, Fred J. Borch, Reginald H. Jones, John F. Welch and Jeffrey R. Immelt.

We begin our analysis in 1940 to explore whether and how planning was undertaken at GE prior to the formal development of what later became known as strategic planning. In exploring the evolution of planning, we examine how practices were shaped by changes in the firm’s structure and strategy. We utilize both primary and secondary data sources to analyze changes in the formal agendas, decision-making channels, roles and vocabularies that have constituted strategic planning at GE. Our methodology uses both narrative analysis and analytical induction, relying on evolutionary perspectives on strategy and the attention-based view of the firm to help guide our analysis and interpretations.6 Our analysis yields a different view of the evolution of strategic planning at GE from standard accounts such as those by Mintzberg and Chandler. As we discuss below, the practice of strategic Long Range Planning, vol 41 2008 planning began earlier than previously thought, albeit in a less developed form and under different labels and organization. The practice was later renamed and transformed under Jack Welch, but not abandoned. Strategic planning practices were conducted as part of GE’s commercial development and post-war planning during the 1940s. Since the early 1950s, GE has adopted an integrated system of long range planning which incorporated activities that we would now consider strategic. While this system has evolved with changing activities, positions and vocabularies, an integrated system of planning, focused on guiding strategy formulation and implementation, remains in place to this day. In analyzing GE’s history, the rise and fall of large strategic planning staffs experienced at GE and in other large U.S. corporations must be distinguished from the overall practice of strategic planning. Strategic planning continues to thrive at GE, albeit in altered form.

GE adopted an integrated long range planning system in the early 1950s, incorporating activities we would now consider strategic. [Despite] changing activities, positions and vocabularies, it remains in place today.

We explore the implication of our findings for research on strategy processes and practices and for strategy practitioners in large multi-business corporations. We focus on strategic planning as a system, with an evolving set of component positions, vocabularies, decision making channels, agendas and routines. We find that GE’s evolving corporate and business unit planning practices continue to offer a viable model of best practice.

What is strategic planning?

In exploring the evolution of strategic planning we first define the term, as its meaning and usage varies widely in both the academic literature and in strategy practice. Developing a consistent definition of strategic planning is important for our efforts to study its history and evolution because, as we will see in the case of GE, organizations may engage in strategy development and planning without labeling these activities as such. While language and labels are important in organizing, we believe it is critical to distinguish the evolution of labels and vocabularies from the evolution of practices.7 We define strategy as a framework, either implicit or explicit, that guides an organization’s choices of action. We interpret this definition broadly and view strategies as planned and emergent, resulting from strategic design, the evolution of a pattern of decisions, or a combination of the above. Consistent with a strategy as practice perspective, we define strategic planning as a form of planning practice intended to formulate strategy. Strategic planning is therefore a particular form of strategizing, one that involves the application of planning practice.8 Following Mintzberg, we define planning as a formalized procedure to produce an articulated result in the form of an integrated system of decisions, and focus on formalization as the key criterion that distinguishes planning from other activities of strategy design or formulation. We

identify three necessary conditions for formalization:

 The articulation of goals and objectives for planning;

 Establishment of a division of authority and responsibility for planning, implementation and control;

 The development of standardized planning procedures.

This definition implies that strategic planning is a management practice developed for the purpose of intentional strategizing. Before its use in the corporate sector, strategic planning was adopted by the U.S. War Department during World War II, referring to the activities of the 250 Strategic Planning at General Electric Army and Navy Generals and staff in providing support for the President and Commander-inChief in planning for the missions and deployment of U.S. and Allied forces on the various war fronts. Strategic planning was viewed as ‘the principal instrument by which political leadership arrives at an accommodation between the compulsions of politics and the realities of war, exercises control over military operations, and allocates the means necessary to support them.’ According to the official War Department perspective, strategy formulation, strategic control and resource allocation were all part of the purview of strategic planning, and was undertaken by staff in conjunction with both line ofcers and the President as the top leader.9 Second, we need to distinguish strategic planning as a formal and scripted, yet ad hoc, activity from strategic planning as an integrated system of strategy formulation. Standard accounts of the history of corporate strategic planning as an integrated system suggest that strategic planning in the U.S. evolved from long range planning, and from attempts to distinguish between the two.10 In the post World War II period, planning for sales growth and manufacturing expansion was a critical issue for industrial companies faced with increasing domestic and international markets. According to this view, long range planning was adopted (to quote Hax and Majluf) as a ‘bottom-up functional process which generates a set of plans that are little more than the budgets extended over a long time horizon.’ We concur that long-run budgetary, financial and manpower planning are not a form of strategizing, and are therefore distinct activities from strategic planning.

But some forms of long range planning activity are strategic: again, we must distinguish the labels used to describe the activity from the actual practices.

Management theorists first began to use the label ‘strategic planning’ to characterize a system of planning practices during the mid-1960s. Igor Ansoff’s influential 1965 treatise on corporate strategy presented a normative model for integrated strategic decision making which highlighted a formal role for strategic planning. He linked strategic planning to the establishment of objectives, the development of product, market, administrative and financial strategies, and the development of a strategic budget. In the same year, Norman Berg published the first article on strategic planning in Harvard Business Review which focused on the practice of corporate planning in large diversified companies, highlighting the use of corporate planning not only for capital budgeting, as typically emphasized, but for identifying new product and project initiatives.11 Third, we need to understand whether and how the components of the strategic planning process are integrated. If strategic planning becomes decoupled from implementation, planning can become a staff function of limited import, typically relegated to the development of information, reports and analysis, and only loosely coupled to executive decision making.12 Consequently, we consider the integration of planning and executive decision making as a key question for the effective

implementation of strategic planning. Integration requires:

 A rationalized process of executive decision making;

 The incorporation of planning into executive decision making;

 The incorporation of planning into management control systems.

Prior research on strategic planning has yielded conflicting results on how planning and decision making are integrated. In an early case study of resource allocation in a large multi-business firm, Bower found that those who identified opportunities deep inside the organization were structurally separated from those who allocated resources. Consistent with this view, Grant’s more recent analysis of strategic planning in the oil majors suggests that planning activities in large multi-business firms reside in large part, at the business unit level, creating an emergent process of strategy formulation at the corporate level which is decoupled from formal strategic planning systems. Others have indicated that component activities are more directly integrated.

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