CHAPTER TWO - LITERATURE REVIEW
2.1 THE CONCEPT OF ORGANIZATION AND ITS ENVIRONMENT
For proper understanding and appreciation of this topic, emphasis must be laid on what organization is all about and how it interacts with its environment to achieve its goals. According to F. Ezionye (2002:47) an organization is the process in which a group of people are structured in an interactive manner in order to set the accomplishment of a goal or objective. An organization is a combination of peoples' or individuals efforts, machines and money and working together to achieve common goals and objectives. An organization is related with developing a framework where the total work is divided into managerial components in order to facilitate the achievement of its goals and objectives.
2.1 THE CONCEPT OF ORGANIZATION AND ITS ENVIRONMENT
For proper understanding and appreciation of this topic, emphasis must be laid on what organization is all about and how it interacts with its environment to achieve its goals. According to F. Ezionye (2002:47) an organization is the process in which a group of people are structured in an interactive manner in order to set the accomplishment of a goal or objective. An organization is a combination of peoples' or individuals efforts, machines and money and working together to achieve common goals and objectives. An organization is related with developing a framework where the total work is divided into managerial components in order to facilitate the achievement of its goals and objectives.
2.2 THE CONCEPT OF CORPORATE PLANNINGA company is a very complex organization acting in and reacting to its very complex environment. In order to move along with the dynamics of the environment in which they find themselves, organizations make plans to guide their actions. Many writers have used words like corporate strategic plan, comprehensive corporate plan, total plan and even long range plan to refer to corporate plan. Whatever the name given to it, they all agree that it is a continuous systematic approach to strategic decision. They all believe like Hussey 1971:6) that corporate planning involves acceptance that the company is not operating in a vacuum and that it is affected by what goes on in the world around it.
Drucker (1964:9) defines corporate planning as making entrepreneurial decision, systematically and with the best possible knowledge of their future, organizing systematically the effort needed to carry out these decisions, and measuring the results against expectations through organized systematic feedback. Branch (1966:21) sees it as plans for five to ten or more years into the future that incorporates and integrates all significant elements of the enterprise such as external environmental factors affecting the organization, market analysis, income and profit etc. Corporate strategic planning involves selecting the right goals and objectives for the organization in the uncontrollable circumstances within it and within the competence resources and ability of the organization. In top management planning, George Steiner refers to comprehensive corporate planning as a system approach to manoeuvring the enterprise over time through the uncertain waters of its environment to achieve prescribed aims. He tries to define corporate planning from points of view: The planning deals with the futurity of current decisions, the process, its philosophy and the structure of business plans. He argues that the purpose of comprehensive corporate planning is to discover future opportunities and make plans to exploit them. Correspondingly basic to long-range planning is the detection of threats and obstructions that must be removed from the ahead. Argents (1989:22) puts it more succinctly by referring to corporate planning as "a systematic process for deciding what the half-dozen top decisions are which an organization must not take in order to prosper over the next few years. Basically, corporate planning is concerned with today not with tomorrow. It is concerned with actions not with plans. It is founded on two propositions, that one cannot decide what actions to take unless one knows what one wants to achieve and that actions taken today can best be directed towards the achievement of the objectives if one knows as much as possible about the future. According to Ewing (1972:6) the purpose of planning is not to preserve the future because no organization is assured of the future, but to enrich the present. It is an intellectual process of looking ahead, its basic aim being to provide an appropriate framework now that will ensure the realization of some goals later. From the ongoing, it then becomes clear that corporate planning has the more modest, if no less crucial purpose of seeking to optimize the collective of the continuing business. To do this, Bernard Taylor divides corporate planning into two parts:-
1.The formal process of developing objectives for the corporation and its component parts, evolving alternative strategies to achieve these objectives and doing this against a background of a systematic appraisal of internal strengths and weakness and external environment changes.
2.The process of translating strategy into detailed operation plans and seeing that these plans are carried out. It can be seen that corporate planning involves mostly decision making, choosing between alternatives. Therefore, it is said to take a systematic, rationalistic and decision making approach. Decision making is essentially a stream of inter-related sequential and concurrent choices. One decision arrived today must have been influenced by those made in the past and in turn will affect, future decisions. Hence, planning establishes and carries out actions in the future. Effective decision making requires a rational selection of a course of action but complete rationality can seldom be achieved. How much does one know about the future? The unknown element is the worst enemy of the manager and overcoming it is his primary task. Simon (1976:45) in his principles of "bounded rationality"
posits that it is impossible for any person to know all potential result. Therefore the manager can only settle for limited information from where he will select the best possible options. How then can one make do with what he has now, to prepare for the future? Then can one make do with what he has now to prepare for the future? In the definition above, there are four essential aspects of corporate planning. In the first place, there must be clear quantifiable objectives and priorities to be pursued. Secondly, there must be a planning horizon over which the plan is expected to last. Thirdly, information requires for taking decision regarding the plan must be made available promptly and accurately. Finally, there should be a methodology for implementing the plan. This would include who would be responsible for various aspects of the plan. What resources will be needed, how would results be measured and what kinds of corrective actions will be taken when deviations from the plan are observed.
2.3 ORGANIZATIONAL DESIGN AND PROCESS OF CORPORATE PLANNING
There is no single organization planning pattern that fits all companies, nor is there a single best organization for planning. This is so because organizations are different in terms of size, diversity of operation, the way they are organized and the style and philosophy of their managers. Egbo Vin (2011:38) describes organizational design as the arrangement of the structure of relationships among jobs, personnel and physical factors, and this design gives rise to an oraganizational structure. Lerner and Baker (1976) in egbo (2011:38) opine that an organizational structure enables management to delegate and control the responsibilities of individuals and departments. Organizational structure defines the duties and responsibilities of the personnel employed in an organization and determine the manner in which themselves and their duties are to be interrelated. A widely accepted approach regarding the design and implementation of an effective formal system for an organization's long-range planning is that the system design should be contingent on the specific situational setting of each particular firm. It should be tailored to the specific corporate strategy, the organizational structure of the firm, the behavioural styles and preferences of the managers at hand. Steiner (1969:18) also adds that the establishment of a central corporate planning staff, and different planning arrangements between a divisionalized company and a centrally controlled and functionally organized company. The degree of authority enjoyed by decentralized division will influence the overall planning programmer likewise the nature of the product. He further argues that the personalities of the executives will have much to do with the organization. A strong chief executive may wish to do his own planning irrespective of the size of the enterprise, where as another may find it more to his liking to spread the planning task around. Henry (1978:16) in "formalized long-range planning in industrial companies" point out that the formal planning system require clear-cut assignments of specific planning functions to individuals and organizations units. Also planning procedures are specified to some degree in planning manuals or guidelines and regular time schedules are established for each major step in planning cycle. Irrespective of the type of organizational design evident in a particular company, the process that leads to the formulation and implementation of a corporate plan remains virtually the same. Writers agree that it should take a decision making approach. Their ideas of what a process of corporate planning should look like is the same with little modification here and there depending on the level of sophistication of the writer. Conceptually, the process is simple, managers at every level the corporate hierarchy must ultimately agree on a detailed integrated plan for the coming year and they arrive at that agreement through a series of steps starting with the delineation of corporate objectives and concluding with the preparation of a profit plan. Akpala (1990:47) talks about the four steps of corporate planning, viz:
a) Assessment of trend of the international, national industry and company environment.
b) Identifying what the business is into.
c) Setting corporate objectives for so many years ahead.
d) Determination of suitable strategies to achieve these objectives.
Profitability
Return on capital employed
Avoidance of loss
John Argent (1987) elaborates more by dividing corporate planning into ten stages.
1. Forming the planning terms to take care of corporate planning.
2. Determine corporate objectives and targets.
3. Forecasting likely performance of the organization in order to compare the target with the forecast to reveal any gap.
4. Appraisal of the strength and weakness of the organization in terms of what is obtained in the industry and environment in general.
5. Determine threats and opportunities
6. Identify alternative strategies.
7. Select strategies
8. Evaluate selected strategies
9. Develop action plans to know who will do what, how where and why.
10. Monitor and control the plan to check for deviations.
In all, three types of data are needed in developing a corporate plan; the corporate objective of the firm; its internal strength and weakness and the threats and opportunities that may lie ahead of it. These three forms the main thrust of the corporate planning process.
2.4 TIME SPAN OF PLANNING
There are sizeable variations among organizations and between different aspects of a single organizations' operations. Some plan for two, three, five, ten years and more. There are a number of considerations that influence the length of the planning period for a given firm. Most obvious is the degree of uncertainty in forecasts and predictions. If beyond a certain point of time in the future, predicting efficiency drops to a level little better than adjusted work, there is nothing to be gained in evolving a complex set of plans for the unpredictable period. Thus, it is not uncommon to restrict planning related to consumer market to three years simply because for many products these markets may become nearly unpredictable beyond that point. The time span of planning is also influenced by need of the company and factors absolutely crucial to a company's survival and growth. However, planning on the whole is frequently carried out on a continuity basis with constant recycling and revaluation. Every organization should be viewed as a dynamically evolving entity whose situational setting is subject to change. The result is that the design of the planning system must constantly evolve if it is to continue to be effective. Most organizations prefer to do a minimum of five year corporate plan. A definite timetable should be established so that person assigned to fulfil the plan will have pre arranged dates by which the successive phases of the operations are to be completed. The use of deadlines provide plan with a sense of urgency. Timing the plan starts with the division of the plan into logical phases. Each phase covers a specific aspect of the plan and should be set up in its order of priority, so that a prerequisite phase is completed in time for the succeeding phase to commerce.
2.5 FORECASTING AND CORPORATE PLANNING
Chuke Nwude (2006: 15) defined forecasting as the act of describing what is likely to happen in the future, based on information that is available now. Forecast is a basic premise upon which planning proceeds. They are estimates of probability, essentially estimates of the way in which large numbers of human beings, each of whom is endowed with free will are likely to behave in the future.
They rely on the law of large numbers, in so far as they assume that if some people change their minds in one direction, other people will change theirs in another direction. In corporate planning, the planners forecast the social and economic environment in which the firm operates and try to detect an opportunity for expansion which already has been detected by so many others that it will not be profitable. Thus, forecast should not be made in the air, but with some particular decision in mind, it is only with some definite decisions in mind that we can decide which bits of the forecast that need to be known in detail, which can be done in general and which can be left out altogether. A firm continually makes estimates of what is likely to happen in the future so that it can decide on how much to produce and what to produce, what to invest in fixed capital and in inventories, how much labour will be employed etc. Ashton (1970) argues that even firms that think they do no forecasting unconsciously make some simple projections into the future of their experience in the recent past. Though forecasts are essential characteristics of human life, one should always remember that they are fallible. None of us knows exactly what will happen in the future because forecasting should not be regarded as a means of arriving at an accurate and detailed view of the future probabilities in an attempt to reduce the uncertainty, which must always surround the future. With a good forecast, a firm now finds it easier to project into the future and make a good plan, once the plan has been made. It should be translated into detail estimates of profit, asset investment, and cash requirements predicted on how much money is expected to be available for meeting the organizations' objectives. This is what is known as budget.
2.6 THE BOARD AND TOP MANAGEMENT
Taylor et al (1973:256) defined the board as a committee elected by the owners of the enterprise (or appointed by the elected representative in the case of enterprises owned by the community) to undertake certain duties on behalf of the owners and to be responsible to them for the carrying out of those duties. Originally, boards consisted of the founding fathers, some sons and other members of the family and perhaps a trusted family solicitor, banker or a friend or two. In successive generations the composition may have been expanded to include a few more outsiders unquestionably loyal to the owners of the company. In course of time, a "seat on the board" become recognized as the ultimate reward for a loyal employee for long and faithful service to the company.
The size of the board depends on so many variables:- The size and complexity of the company, its competitive environment, the capacity of the individual members etc. The most basic responsibility of a board is to choose and support competent top executives, to check their performances against budgets and to ensure that budgets are fully related to realistic plans. Taylor (1988:258) argues that the board does not manage but directs and controls. The role of the board as important procedures of planning and control are the means of fulfilling the fiduciary responsibility of directors to shareholders.
However, the board is seen by many as a mere rubber stamp. They cannot initiate planning proposals or do the research for them, but simply rubber stamp the decision of the executive team. Mann (1970:29) is of the view that the function of directors and boards as part of the management responsible for maintaining the competitive strength and profitability of the organization are not clearly defined and understood. As a result, many boards fail either to recognize or to fulfil their managerial responsibilities. Many directors indeed seem to be concerned only with board "policy" matters and feel little or no personal liability for the way the company is actually being managed. The board is legally accountable to its shareholders for the profitable management of their capital but in many cases this accountability is not translated into effective pressure on the organization's executive management to produce results. Francis (1960:82) posits that boards should be more independent for they are to stop being a mere rubber-stamp. But, the problem is how to get a board that is alert, creative and responsive, anything but a "rubber stamp" at the same time give management all the opportunity, flexibility and freedom it needs to do the best possible job.
Some of the functions of the board are as follows:-
1. It improve the performance of business for the benefit of the shareholders, managers and employees.
2. It provide a philosophy and a set of principles which will guide the actions of the people involved in the business.
3. To set the strategy and direction of the organization.
4. To monitor and control the organizations operations.
On the other hand, the management consists of the chief executive officer and other top level managers of the organization. They are more involved with the planning of operations from initial proposal to implementation and monitoring. The chief executive faces a dilemma in that while he is worried about the future, he spends most of his time dealing with the day-to-day operations of the organization, who then should make plans? Among the planners must be the chief executive officer, his senior colleagues, a specialist planner inside the organization, a specialist from outside and any combination of these. Hussey (1971:7) like Argent, argues that while each type of organization will require a different combination of members, there should be a planning team with the chief executive officer as the leader. Long et al (1977:40) maintain that planning should be undertaken by those levels in an organization who are responsible for the strategic long-term decisions. This goes a long way to reaffirm the fact that planning should not be the duty of the board but the chief executive and other top level managers. Every top management knows that their corporate obligation is to plan for the future with unmistakable seriousness of purpose. However, they differ in their depth of experience with the process, the degree of sophistication developed and the means of implementation applied.
2.7 CORPORATE PLANNING AND ORGANIZATIONAL PERFORMANCE
Corporate planning can be defined as the process of using systematic criteria and rigorous investigating to formulate, implement and control strategy and formally document organizational expectations (Higgins and Vineze, 1993). As in many other fields, corporate planning professionals often clock their work in pseudo scientific jargon designed to glorify their work and create client dependence. In reality, corporate planning processes are neither scientific nor complex. With modest, front end assistance and the occasional service of an outside facilitator, organizations can develop and manage an on-going and effective planning programme. In business, corporate planning provides overall direction for specific units such as financial focuses, projects, human resources and marketing. Corporate planning may be conducive to productivity improvement when there is consensus about mission and when most work procedures depend on technical or technological considerations. This study goes beyond the observation of some research that questioned the existence of direct casual relationships between the use of corporate planning and improved performance. This study draws from some of the many publications on the use of corporate planning in the private sector and from the growing number of those that deal with its uses and potential for the public sector. One of the major purpose of corporate planning is to promote the process of adaptive thinking or thinking about how to attain and maintain firm environment alignment. According to Berry (1997) corporate planning is a tool for finding the best future for your organization and the best path to reach that destination. Quite often, an organization's corporate planners already know much of what will go into a strategic plan. However, development of the corporate plan greatly helps to clarify the organization's plan and ensure that the leaders are all on the same script but far more important than the corporate plan document is the corporate planning process itself. The corporate planning process begins with an assessment of the current economic situation. First examine factors outside of the company that can affect the company's performance. In most cases, it makes sense to focus on the national, local or regional and industry economic forecast. This part of the analysis should begin early at least a quarter or so before the formal planning process begins. Hence, it has been concluded that corporate planning positively affects organizations' performance, or more specifically, the amount of corporate planning an organization conducts positively affects its financial performance. Since the case study used for this research is a bank, there is a need to understand corporate planning and financial performance relationships in banks. The results from past researches suggested that the intensity with which banks engage in the corporate planning process has a direct positive effect on bank's financial performance and mediates the effect of managerial and organizational factors on banks performance. Results also indicated a reciprocal relationship between corporate planning intensity and performance. That is, corporate planning intensity causes better performances and in turn, better performance causes greater corporate planning intensity (Hopkins and Hopkin, 1997). There is a constant need for organizations especially financial institutions like banks to think strategically about what is going on (Schmenner, 1995). This appears to be precisely what banks, in particular have begun to do in recent years. In response to increasing complexity and change in the financial services industry, banks have turned to corporate planning. The relatively new trend towards corporate planning in banks is viewed as a move designed not only to help them negotiate their environment more effectively, but to improve their financial performance as well (Bettinger, 1995). Inconsistent results of bank related research, however, have not fully resolved the issue of whether corporate planning leads to improvements in banks financial performance. The intensity with which managers engage in corporate planning depends on managerial (e.g. corporate planning expertise and beliefs about planning - performance relationships), environmental (e.g. complexity and change) and organizational (e.g. size and structural complexity) factors. The effect of these factors on corporate planning intensity have been suggested by several studies (Robinson et al (1998). Studies that have analyzed the relationship between corporate planning and financial performance proved that the intensity with which banks engage in the corporate planning process intervene -that is cause an indirectness and lack of one-to-one correspondence between factors such as corporate planning expertise and beliefs about planning performance relationships (managerial factors), environmental complexity and change (environmental factors) bank size and structural complexity (organizational factors) and bank's financial performance. As suggested by the inconsistent research findings, past studies have misspecified the relationship between corporate planning and financial performance in banks. Misspecification of this relationship might be attributed to past studies, lack of attention to the relationship among these managerial, environmental, organizational factor and their potential impact on planning intensity and performance (Hopkins and Hopkins, 1997). Subsequently the consideration of such factors in the present study is viewed as a significant issue that holds implications for future research as well as for planning practices.
1. It improve the performance of business for the benefit of the shareholders, managers and employees.
2. It provide a philosophy and a set of principles which will guide the actions of the people involved in the business.
3. To set the strategy and direction of the organization.
4. To monitor and control the organizations operations.
On the other hand, the management consists of the chief executive officer and other top level managers of the organization. They are more involved with the planning of operations from initial proposal to implementation and monitoring. The chief executive faces a dilemma in that while he is worried about the future, he spends most of his time dealing with the day-to-day operations of the organization, who then should make plans? Among the planners must be the chief executive officer, his senior colleagues, a specialist planner inside the organization, a specialist from outside and any combination of these. Hussey (1971:7) like Argent, argues that while each type of organization will require a different combination of members, there should be a planning team with the chief executive officer as the leader. Long et al (1977:40) maintain that planning should be undertaken by those levels in an organization who are responsible for the strategic long-term decisions. This goes a long way to reaffirm the fact that planning should not be the duty of the board but the chief executive and other top level managers. Every top management knows that their corporate obligation is to plan for the future with unmistakable seriousness of purpose. However, they differ in their depth of experience with the process, the degree of sophistication developed and the means of implementation applied.
2.7 CORPORATE PLANNING AND ORGANIZATIONAL PERFORMANCE
Corporate planning can be defined as the process of using systematic criteria and rigorous investigating to formulate, implement and control strategy and formally document organizational expectations (Higgins and Vineze, 1993). As in many other fields, corporate planning professionals often clock their work in pseudo scientific jargon designed to glorify their work and create client dependence. In reality, corporate planning processes are neither scientific nor complex. With modest, front end assistance and the occasional service of an outside facilitator, organizations can develop and manage an on-going and effective planning programme. In business, corporate planning provides overall direction for specific units such as financial focuses, projects, human resources and marketing. Corporate planning may be conducive to productivity improvement when there is consensus about mission and when most work procedures depend on technical or technological considerations. This study goes beyond the observation of some research that questioned the existence of direct casual relationships between the use of corporate planning and improved performance. This study draws from some of the many publications on the use of corporate planning in the private sector and from the growing number of those that deal with its uses and potential for the public sector. One of the major purpose of corporate planning is to promote the process of adaptive thinking or thinking about how to attain and maintain firm environment alignment. According to Berry (1997) corporate planning is a tool for finding the best future for your organization and the best path to reach that destination. Quite often, an organization's corporate planners already know much of what will go into a strategic plan. However, development of the corporate plan greatly helps to clarify the organization's plan and ensure that the leaders are all on the same script but far more important than the corporate plan document is the corporate planning process itself. The corporate planning process begins with an assessment of the current economic situation. First examine factors outside of the company that can affect the company's performance. In most cases, it makes sense to focus on the national, local or regional and industry economic forecast. This part of the analysis should begin early at least a quarter or so before the formal planning process begins. Hence, it has been concluded that corporate planning positively affects organizations' performance, or more specifically, the amount of corporate planning an organization conducts positively affects its financial performance. Since the case study used for this research is a bank, there is a need to understand corporate planning and financial performance relationships in banks. The results from past researches suggested that the intensity with which banks engage in the corporate planning process has a direct positive effect on bank's financial performance and mediates the effect of managerial and organizational factors on banks performance. Results also indicated a reciprocal relationship between corporate planning intensity and performance. That is, corporate planning intensity causes better performances and in turn, better performance causes greater corporate planning intensity (Hopkins and Hopkin, 1997). There is a constant need for organizations especially financial institutions like banks to think strategically about what is going on (Schmenner, 1995). This appears to be precisely what banks, in particular have begun to do in recent years. In response to increasing complexity and change in the financial services industry, banks have turned to corporate planning. The relatively new trend towards corporate planning in banks is viewed as a move designed not only to help them negotiate their environment more effectively, but to improve their financial performance as well (Bettinger, 1995). Inconsistent results of bank related research, however, have not fully resolved the issue of whether corporate planning leads to improvements in banks financial performance. The intensity with which managers engage in corporate planning depends on managerial (e.g. corporate planning expertise and beliefs about planning - performance relationships), environmental (e.g. complexity and change) and organizational (e.g. size and structural complexity) factors. The effect of these factors on corporate planning intensity have been suggested by several studies (Robinson et al (1998). Studies that have analyzed the relationship between corporate planning and financial performance proved that the intensity with which banks engage in the corporate planning process intervene -that is cause an indirectness and lack of one-to-one correspondence between factors such as corporate planning expertise and beliefs about planning performance relationships (managerial factors), environmental complexity and change (environmental factors) bank size and structural complexity (organizational factors) and bank's financial performance. As suggested by the inconsistent research findings, past studies have misspecified the relationship between corporate planning and financial performance in banks. Misspecification of this relationship might be attributed to past studies, lack of attention to the relationship among these managerial, environmental, organizational factor and their potential impact on planning intensity and performance (Hopkins and Hopkins, 1997). Subsequently the consideration of such factors in the present study is viewed as a significant issue that holds implications for future research as well as for planning practices.
THIS IS A SAMPLE | WE ARE PROFESSIONALS IN WRITING FINAL YEAR PROJECTS BUSINESS PROPOSALS, FEASIBILITY STUDY, BUSINESS PLAN AND FINANCIAL TEMPLATES