HOW PLANNING CAN

DESTROY VALUE
Is no planning better than no planning? In my experience, the answer can be yes. Bad planning
actively destroys value. It wastes peoples time and money. It sends the wrong signals to
managers. It can ever lead managers to follow bad advice.
Wasting time and money. For the
corporate center to add value, it has to be
able to coax unit managers to do things
differently than they would on their own. But
at many companies, business unit plans get
through the process largely unscathed.
How many times have you left a
management meeting saying to yourself,
Well, we did a good job today the
suggestions we got from the corporate
center will help us generate an extra half a
million dollars in value. Nor often, I suspect.
The typical corporate center simply rubberstamps the units proposals. A lot of time
and effort is spent to no purpose. And the
costs are not trivial. In one company I
studied, I found that managers had spent
about 300 days on planning in each
business unit. At an estimated cost of
$1000 per manager per day, the planning
process cost each unit about $ 300,000.
That is a lot to pay for a rubber-stamp.
Sending the wrong Signals. In many
companies, much of the bottom-up planning
work is completed before there is any
dialogue between business unit and the
corporate center. As a result, business unit
managers become expert Kremlinologists,
trying to second-guess what the corporate
center expect to see. The problem is
accentuated by the fact that managers are
unduly anxious to get their plans right the
first time around because the cost of failure
is so high. Not only must they redo their
plans; they also lose face with both their
employees and the corporate leadership. A
rumor that the company is going to be short
of cash, for instance, can prompt several
often contradictory responses. While
some unit managers cut back on capital

requests for the year, others increase their

requests because they want to have something
to take out when the corporate center makes an
across-the-board cut. Or the chief executives
speech at a management conference about the
importance of doing business in Asia can cause
units to boost the resources they allocate to
Asian sales initiatives. If such signals are openly
acknowledged as part of the planning process,
then these reactions are fine. But all too often,
corporate
signals
are
unintended
or
misinterpreted. As a result, unit managers may
submit plans that they deem to be politically
correct but that are competitively unsound.
Giving Bad advice: In the planning process,
just as with other interaction between the
corporate center and the business units,
corporate executives must carefully manage
their involvement. This is because they have one
huge disadvantage: they have less time to
master the details of any individual business. Its
fair to say that corporate executives can spend
only 10% or less of their time on advising
business unit teams that are spending 100% of
their time considering the same issues. The
potential for misguided advice is high,
particularly in diversified companies. A corporate
manager searching for growth, for example, may
encourage a business unit to take its eye off cost
management, and as a result the unit may lose
ground to competitors. In another situation, an
executive pushing for profit may cause a unit to
reduce its marketing expenditures or to increase
its prices, in turn creates opportunities for
weaker competitors. Often the problem arises
when a formula that has worked in one of the
business is applied to another whose
circumstances are subtly different. This much is
clear: when it comes to planning, corporate
managers must limit themselves to giving advice
in areas where they know they can add value.

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