Peter Lorange.

An analytical scheme for the assessment of a diversified company's corporate planning system : needs, capabilities, effectiveness online

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LIBRARY

OF THE

MASSACHUSETTS INSTITUTE

OF TECHNOLOGY



A\%





WORKING PAPER


ALFRED


P. SLOAN SCHOOL OF MANAGEMENT


AN ANALYTICAL


SCHEME FOR THE ASSESSMENT OF A DIVERSI-


FIED COMPANY'S CORPORATE PLANNING SYSTEM: NEEDS;


CAPABILITIES;


EFFECTIVENESS


Peter Lorange




WP 964-77


December 1977




MASSACHUSETTS




INSTITUTE OF TECHNOLOGY




50 MEMORIAL DRIVE


CAMBRIDGE, MASSACHUSETTS 02139



AN ANALYTICAL SCHEME FOR THE ASSESSMENT OF A DIVERSI-
FIED COMPANY'S CORPORATE PLANNING SYSTEM: NEEDS;
CAPABILITIES; EFFECTIVENESS

Peter Lorange

WP 964-77 December 1977



Content



Section I Introduction; Purpose; Focus; Definitions Page 1

Section II Assessment of the Needs for Plamning, as Evidenced
by the Corporate and Business Strategic Settings;
For the Corporate Planner Page 6

Section III Assessment of the Capabilities of the Corporate Plan-
ning System, as Evidenced by its Design and Structure,
For the Corporate Planner Page 29



Section IV Assessment of the Users' Perceptions about Needs for
Planning and Capabilities of the Corporate Plcinning
System; For Line Managers

Section V Assessment of Specific Aspects of Planning; Energy's
Role in Planning; Incentive Systems' Roles; "Plam for
Planning;" For the Corporate Planner and Selected
Additional Corporate Staff

Section VI Outline of the Structure of the Data Analysis



Page 55



Page 70
Page 80



Section I



JnaJfToD
Introduction; Purpose; Focus; Definitions .

This paper is intended as a manual for clinical analysis, of the plan-
ning system of a diversified company. The emalysis is concerned with the
following classes of" issues. The general obiective will be to arrive at
an assessment, of the effectiveness of a company's corporate planning system

, •_!? rrj ■">.fj 1-+;; fj.;; '. '.r- t "'£?;' "' ^-L "^' C'."''* " ■'' •=* "-'2 ''i'l J:'' . ."'■-i"f ■■.';-' r-,'-jr'

"■% o ri|^ *^6rms of the overall degree of match between the company 'Is needs for

plcinning, in terms of adaptation- as well as integration-related needs,

, - J-"".'"''".''^ " ' j-)'."'i.C'.,






"'




Adaptation = 4


Adaptation = 3


Adaptation = 2


Weak


Integration = 4


Integration = 5


Integration =



Stronger



Medium



Weaker



Change in Financial Position (Near Term Performance
[See alternative ways of calculating this]



Alternative ways of calculating near-term performance ;
a) Sales performance

1971-76 improvement in net sales, 1976 in Z of 1971 (1971

Please calculate %



100%)



14



- Strong: 200% or more

- medium: 125% - 199%
-= weak: 124% or less

b) Profits performance

1971-76 improvement in net profits, 1976 in 2 of 1971 (1971 = 100%)
Please calculate %

- strong: 150% or more

- medium: 110% - 149%

- weak: 109% or less

c) Earnings per share

1971-76 improvement in earnings per share, 1976 in % of 1971
(1971 = 100%).

Please calculate Z

~ strong: 200% or more

- medium: 125% - 199%

- weak: 124% or less

NB ; Please notice that we shall decide which one of the alternative near

term performance measures (a), (b) or (c) to use, or which combinations
•thereof to use after we have gotten some better feeling for the nature
of the data.



15



B. Planned (1981) Position (Score 6 is high; score 4 is medium; score 2 is 1



(D:E

Ratio,

1981)



Strong



Financial 0.5 (l:2j^



Strength



Medium



l'> (3:2^



Weak



Adaptation = 6
Integration = 2



Adaptation = 5
Integration = 3



Adaptation = 5



Integration = 3



Adaptation = 4




Integration = 4



Adaptation = 4
Integration = 4



Adaptation = 3
Integration = 5



Adaptation =
Integration

Adaptation =



I



Integration



Adaptation



L,



Integration



^ Stronger



Medium



Weaker



Change in Financial Position (Near Term Performance
[See alternative ways of calculating this]

Alternative ways of calculating near-term performance :
a) Sales performance

1976-81 improvement in net sales, 1981 in % of 1976 (1976 = 100%).

Please calculate %

- strong: 200% of more

- medium: 125% - 199%

- weak: 12A% or less



16



b) Profits performance

1976-81 iriprovement in net profits, 1981 in % of 1976 (1976 = 100%)
Please calculate Z

- strong: 150Z or more

- medium: 110% - 149%

- weak: 109Z or less

c) Earnings per share

1976-81 improvement in earnings per share, 1981 in Z of 1976

(1976 = 100%).

Please calculate Z

- strong: 200% or more

- medium: 125% - 199%

- weak: 124% or less

NB: Please notice that we shall decide which one of the alternative near

term performance measures (a), (b) or (c) to use, or which combinations
thereof to use after we have gotten some better feeling for the nature
of the data.



(1) Adaptation Needs



High ^"^ Medium Low



(«) Present Strategic Position

(Chart A) ?^ 'li



(6) (^^.^^^, (4i (2)
High Madlum Low



(b) Planned (1981) Strategic
Position (Chart B)



(6) (5) (4) (3) (2)
(c) Adaptive Need = Sum of (a) + (b) scores =



17



(2) Integrative Needs



(a) Present Strategic Position
(Chart A)



High



(b) Planned (1981) Strategic
Position (Chart B)



(6) (5)
High



Medium

~(4l
Medium



(6) (5) (4)
(c) Adaptive Need = Sum of (a) + (b) scores =



Low



(3) (2)
Low



(3) (2)



4. Portfolio Need for Planning, Stemming from Changes in the Structure of
the Portfolio
a) Sales - Present

Please compare Charts A and B under Paragraph 2 when it comes
to Item 1, Net Sales. For division A, calculate the numerical
difference between its 1971 percentage sales and its 1976 percentage
sale. If division A did not exist in 1971 then assign the percentage
value of 0% to the 1971 position of this division and carry the
calculation out on this basis. If division A did not exist in 1976
then assign the 0% value to it for this year and carry out the
calculation. Then, sum up the total numerical differences for all
the divisions:

Division A: % change in sales share

. Division B: % change in sales share

Division M: 7. change in sales share

Sum, Ap " Corporate change factor



18



b) Net Profits - Present

Please compare Charts A and B under Paragraph 2 when It comes
to item 2, Net Profits. For division A, calculate the numerical
difference between its 1971 percentage profits and its 1976
percentage profits. If division A did not exist in 1971 then
assign the percentage value of 0% to the 1971 position of this
division and carry the calculation out on this basis. If division A
did not exist in 1976 then assign the OZ value to it for this year
and carry out the calculation. Then, sum up the total numerical
differences for all the divisions:

Division A: X change in profits share

^... , Division B: Z change in profits share

Division M: Z change in profits share

Sum , Bp ■ Corporate change factor

c) Number of Employees - Present


1 3 4 5

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