1. No category

Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors
Author(s): Robert M. Grant
Source: Strategic Management Journal, Vol. 24, No. 6 (Jun., 2003), pp. 491-517
Published by: John Wiley & Sons
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Strat. Mgmt.
online
Published
inWiley
InterScience
Journal
Management
Strategie
J., 24: 491-517
DOI:
(www.interscience.wiley.com).
(2003)
10.1002/smj.314
STRATEGIC PLANNING INA TURBULENT
ENVIRONMENT:EVIDENCEFROMTHE OILMAJORS
ROBERTM. GRANT*
McDonough
The
long-running
has
formation
evidence
of Business,
School
debate
involved
between
caricatures
and
of whether
renders
the
how
Georgetown
'rational
of firms
companies
' design
strategic
University,
'
and
DC, U.S.A.
Washington,
'
'emergent
process
schools
but
processes,
planning
the presumption
Despite
plan.
all but impossible,
planning
that
of strategy
little
empirical
environmental
the
the evidence
conventional
strategic
from
are greatly
that reports of the demise
suggests
exaggerated.
of strategic
planning
is tofill this empirical
the characteristics
gap by describing
of the strategic
of this paper
multibusiness
with
volatile,
systems
companies
faced
unpredictable
of multinational,
planning
case
studies
business
environments.
systems
of the planning
of eight
of the world's
In-depth
in the nature
and role of strategic
changes
planning
identified fundamental
largest oil companies
'
'
to a possible
reconciliation
and
since the end of the 1970s. The findings
'process
point
of 'design
to a process
to strategy
in
The study pointed
emergence
of planned
formulation.
approaches
turbulence
sector
corporate
The goal
which
a mechanism
decentralized
systems provided
strategic
for coordinating
planning
a structure
within
targets and clear corporate
of demanding
performance
and responsiveness,
that these planning
shows
systems fostered
adaptation
formulation
The study
strategy
guidelines.
but showed
limited innovation and analytical sophistication. Copyright ? 2003 JohnWiley & Sons, Ltd.
INTRODUCTION
weakly
zational
Since
the early 1980s, strategic planning?syste
to strategy formula
matic, formalized approaches
come under heavy attack from manage
tion?has
ment scholars. Criticisms
have addressed the the
oretical foundations
of strategic planning, partic
of forecasting
ularly the impossibility
(Mintzberg,
1994b: 110), while empirical evidence?both
lon
case
studies
and
Waters,
gitudinal
(e.g., Mintzberg
of strategic
1982; Pascale,
1984) and investigations
decision making
1970; Burgelman,
(e.g., Bower,
to strategies
from the
1983)?points
emerging
Key words:
tries
strategic
planning
systems;
oil
and gas
indus
to: Robert M. Grant, McDonough
School
of
^Correspondence
Old North Building, Wash
Business,
Georgetown
University,
ington, DC 20057, U.S.A.
Copyright ? 2003 JohnWiley & Sons, Ltd.
coordinated
decisions
of multiple
organi
members.
Increased
environment
more
makes systematic strategic planning
difficult.
that are flexi
Rapid change requires strategies
ble and creative?characteristics
accord
which,
ing to Hamel, are seldom associated with formal
volatility
of the business
'In the vast majority
ized planning:
of compa
is a calendar-driven
rit
nies, strategic planning
ual ... [which assumes]
that the future will be
more or less like the present'
(Hamel, 1996: 70).
Eisenhardt's
ronments'
into 'high velocity
research
envi
to
the
of
'semico
points
advantages
that
processes
strategic decision-making
herent'
are unpredictable,
uncontrolled,
inefficient, proac
and diverse
tive, continuous,
1989;
(Eisenhardt,
Brown and Eisenhardt,
and
1997). If complexity
render
decision
uncertainty
making
impossible,
Received
25
Final
revision
October 1999
received
15 December
2002
R. M. Grant
492
then self-organization
to
may be more conducive
than hierarchical direction (Pas
high performance
cale, 1999).
The goal of this paper is to explore whether
and how companies'
strategic planning practices
have adapted to a world of rapid, unpredictable
The study identifies the key features of
strategic planning systems in an industry that tran
sitioned from stability to turbulence?the
world
petroleum
industry. It explores the changing char
acteristics
of the oil majors'
strategic planning
change.
and the changing role of strategic plan
processes
ning within the companies. The study fills a gap in
the literature: despite the intense debate over the
merits of strategic planning and continued
inter
est in strategic decision
within
firms,
processes
we know little about the formal systems through
which
formulate
their strategic plans.
companies
to strategic management
The paper contributes
in three areas. First, it provides descrip
knowledge
tive data on the strategic planning
of
practices
some the world's
largest and most complex compa
nies during the late 1990s and how these practices
to increasing
in response
environment
changed
turbulence.
it informs the long-running
Second,
debate between
the 'design' and 'process' schools
of strategic management
and suggests a possible
reconciliation
of the two. Third,
it sheds light
and control in large, com
upon the coordination
in fast-changing
busi
plex enterprises
operating
ness
environments.
PLANNING AND ENVIRONMENTAL
TURBULENCE: THEORY AND
EVIDENCE
The
literature
Interest in strategy as an area of management
the diffusion of strategic planning
study followed
among
large companies
('long-range
planning')
on long
the
and
Articles
1950s
1960s.
during
in the Harvard
range planning began appearing
Business Review
1956-61
1956;
(Ewing,
during
Platt
and
1957;
Maines,
1959;
1957;
Payne,
Wrap,
1961) and by 1965 the first systematic,
Quinn,
for strategy for
based frameworks
analytically
Learned et ai,
mulation
1965;
(Ansoff,
appeared
1965).1
Empirical
studies
of
corporate
1
for corporate
Professional
planners
organizations
the development
of strategy
ideas and techniques.
Copyright ?
2003 John Wiley
& Sons, Ltd.
planning
stimulated
The North
in the United
included,
States, Cleland
practices
(1962), Henry
(1967), the U.S. House of Repre
on Science and Technology
sentatives Committee
(1976), Ang and Chua (1979), and Capon, Farley,
and Hulbert
(1987); and in the United Kingdom,
and Lehr (1971, 1972) and Grinyer and
Denning
Norburn
(1975).
as an area
As strategic management
developed
of academic
study, interest in companies'
strategic
waned. By the 1980s empiri
practices
planning
cal research in strategic planning systems focused
upon just two areas: the impact of strategic plan
and the role of strate
ning on firm performance
in strategic decision making.
The
gic planning
first area spawned many
studies but no robust
and Camil
findings.
Ramanujam,
Ramanujam,
lus (1986: 347) observed:
'The results of this
and contradic
body of research are fragmented
while
concluded:
'The
(1991)
survey
tory,'
Boyd's
overall effect of planning on performance
is very
weak.'2
The second area of research explored the orga
nizational processes
of strategy formulation. Lon
studies
of
gitudinal
strategy formation (Mintzberg
and Waters,
and McHugh,
1982; Mintzberg
1985;
and Waters,
Brunet,
1986) and Pas
Mintzberg,
cale (1984) identified a process of emergence
that
to formal, rational, strategic
bore little resemblance
planning processes. Corporate-level
strategic deci
sions emerged from complex interactions between
individuals with different
interests and different
1970;
(Bower,
1983). The
perceptions
Burgelman,
debate
the
advocates
of
system
pitted
resulting
atic, rational analysis (Ansoff, 1991; Goold,
1992)
those
who
the
favored
valid
against
empirical
of emergent processes
ity and normative merits
1991, 1994a).
(Mintzberg,
The contribution
of both areas of research has
been limited by lack of empirical
investigation
of the phenomenon
itself. Planning-performance
studies relied upon largely
tions of strategic planning
superficial
practices
characteriza
based mainly
of Corporate
Planners was founded
in 1961.
Society
to create the
with
the Planning
Executives
Institute
Forum).
Planning Forum (later renamed the Strategic Leadership
In the United
the Long Range
Kingdom,
Society
Planning
was founded
the Strategic Planning
in
(later renamed
Society)
American
It merged
1966. Both societies
launched journals: Planning
Review
(since
renamed Strategy & Leadership)
and Long Range Planning.
2
and Cardinal
Miller
(1994) did find that 'strategic planning
firm performance;'
influences
their 'meta
however,
positively
of 35 previous
studies meant
the method
analysis'
accepting
ological
weaknesses
of prior
studies.
Strat. Mgmt. J, 24: 491-517
(2003)
Strategie
data.3 The
'design vs. pro
upon questionnaire
cess' debate has centered on a few well-known
case examples?notably
Honda's
entry into the
market (Pascale, 1984; Mintzberg
U.S. motorcycle
et al., 1996); yet the validity of the Honda case
it as a
author described
remains dubious?its
of anecdote'
'small foundation
arising from a
rather than scholarly ambi
'quest for amusement
tion' (Mintzberg et al, 1996: 112).
The
impact
of environmental
turbulence
Planning
the
of making
The challenge
strategy when
reconsideration
future is unknowable
encouraged
and
of strategy formulation
of both the processes
to
the nature of organizational
strategy. Attempts
systematic strategic planning with turbu
included
lent, unpredictable business environments
the following.
493
Environment
former head
and organizational
learning. Shell's
'the real purpose of effective
of planning observed:
planning is not to make to plans but to change the
that decision makers carry in their
mental models
1988: 73). With scenario analy
heads' (De Geus,
sis, strategic planning is a process where decision
makers share and synthesize their different knowl
edge sets and surface their implicit assumptions
and the mental models.
Strategic
reinforced
in the business
environment
Changes
In the
the case against formal strategic planning.
last quarter of the twentieth century, macroeco
the
nomic disequilibrium,
exchange rate volatility,
microelectronics
revolution, and the emergence of
countries marked the end of
newly industrializing
and
postwar economic
stability. Since economic
market forecasts provided the foundation for strate
inability to predict demand, prices,
gic planning,
exchange rates and interest rates represented a fun
to companies'
damental challenge
ability to plan.
in a Turbulent
intent and the role of vision
in any detailed
If uncertainty precludes planning
sense, then strategy is primarily concerned with
establishing broad parameters for the development
of the enterprise with regard to 'domain selec
tion' and 'domain navigation'
1980).
(Bourgeois,
Uncertainty
requires that strategy is concerned less
with specific actions and the more with establish
short-term
ing clarity of direction within which
flexibility can be reconciled with overall coordina
tion of strategic decisions. This requires that long
articulated
term strategic goals are established,
through statements of 'vision' and 'mission' (Van
to through
Der Heijden,
1993), and committed
and
intent'
Prahalad,
1989).
(Hamel
'strategic
reconcile
Strategic
innovation
If established
Scenario
vive,
planning
seeks not to predict
scenario planning
Multiple
to
but
the future
envisage alternative views of the
of
in
form
of distinct configurations
the
future
variables
1993,
(Schoemaker,
key environmental
forecasts in favor
1995). Abandoning
single-point
of alternative futures implies forsaking single-point
plans in favor of strategy alternatives,
emphasiz
that creates option values.
ing strategic flexibility
as recognized
foremost
However,
by Shell?the
the
of
scenario
within
corporate
exponent
planning
sector?the
primary contribution of scenario plan
so
not
much the creation of strategic plans
is
ning
a process
as establishing
for strategic
thinking
3
not
In some cases questionnaire
data were
from managers
and Hunt
involved
in strategic planning.
Thus, Brews
directly
and 'overall
between
strategic planning
analyzed
relationships
firm performance'
using written questionnaires
given to 'senior
and mid-level
executives
39 educational
programs
attending
1999: 896).
offered at three business
schools'
(Brews and Hunt,
Copyright ?
2003 John Wiley
&
Sons,
Ltd.
new
companies
external
are to prosper
environments
require
and sur
new
strat
and Stopford, 1994; Markides,
egies (Baden-Fuller
1998). Strategic
planning may be a source of
'Search
institutional inertia rather than innovation:
all
those
all those strategic planning
diagrams,
boxes
interconnected
that supposedly
give you
nowhere
and
will you find a single
strategies,
one that explains
the creative act of synthesiz
a novel strategy' (Mintzberg,
into
ing experiences
in organiza
1994b: 109); 'The essential problem
tions today is a failure to distinguish planning from
1996: 71). Yet, systematic
(Hamel,
strategizing'
to
strategy can encouraging managers
approaches
to explore
the scope of their
beyond
tun
'Good
scenarios
challenge
prior experiences:
for
nel vision by instilling a deeper appreciation
that
the
future'
the myriad
factors
(Schoe
shape
inertia may be more
1995: 31). Strategic
maker,
to do with the planners than of planning per se.
teams are characterized
If top management
by
alternatives
lack of genetic
Strat.
diversity
Mgmt.
and heavy
J.,
investments
24: 491-517
(2003)
494
R. M. Grant
of emotional equity in the past, breaking the con
servative bias of strategic planning may require
members
who
younger
involving
organizational
are further from the corporate HQ (Hamel, 2000:
can also be enhanced
innovation
148). Strategic
to
in a
through sensitivity
emerging discontinuities
evolution?these
company's
strategy/environment
inflection points') offer
misalignments
('strategic
the potential for radical strategic change (Burgel
man and Grove,
1996).
Complexity
and self-organization
and Pascale's
in favor of
arguments
Mintzberg
as
an
infor
strategy making
organic, unsystematic,
mal process have received
reinforce
conceptual
ment from complexity
of complex
theory. Models
for
systems developed
adaptive
mainly
analyz
evolution have also been applied to
ing biological
the evolution
of organizations
(Anderson,
1999).
These models
offer interesting
for
implications
For
faced with
strategy.
organizational
example,
a constantly changing fitness landscape, maximiz
ing survival (reaching high fitness peaks) implies
constant exploration, parallel exploration efforts by
different
and the com
members,
organizational
bination of incremental
steps ('adaptive walks')
with occasional major
1999).
leaps (Beinhocker,
What
kinds of strategy can achieve
this adap
tation? Brown and Eisenhardt's
(1997) study of
six computer firms points to the role of 'limited
probes into the future' that involve experimenta
tion, strategic alliances, and 'time-based transition
that link the present with the future. A
processes'
of strategic processes
feature
is the presence
key
of
'semistructures'
that
create
standards,
plans,
and
for certain activities, while allow
responsibilities
freedom
elsewhere
(Brown and Eisenhardt,
ing
1997: 28-29). One application of the semistructure
concerns
the use
concept to strategy formulation
of simple rules that permit adaptation while estab
from
lishing bounds that can prevent companies
off
the
of
chaos
and
Sull,
(Eisenhardt
falling
edge
2001).
U.S. corporations.
Yet most
leading-edge
to
decisions
be
made
outside
of
appear
strategic
formal strategic planning systems. Analyzing
1087
among
decisions
127 Fortune
500 companies,
Sinha
contributions
of formal
... are modest'
(Sinha,
strategic planning systems
In unstructured
1990: 489).
and fast-moving
and
contexts, strategies tend to emerge: Mintzberg
(1985) identified a 'grass roots' process
McHugh
by
concluded:
'the overall
of strategy formulation, while
of Intel's exit from DRAM
to the
1994, 1996) pointed
Burgelman's
study
chips (Burgelman,
smooth and timely
to external change that resulted from
decision processes
forming an 'internal
adaptation
unplanned
selection
mechanism.'
Evidence
of
the impact of environmental
tur
is limited. Cross
upon strategic planning
sectional studies have produced
inconsistent find
evidence
is fragmented,
but
ings.4 Longitudinal
more consistent:
in response
to increasing envi
ronmental
turbulence,
systems
strategic planning
have changed
from the highly for
substantially
malized
of the 1960s and 1970s. Busi
processes
ness Week's
that 'strategic
(1996: 46) proclamation
planning is back with a vengeance'
acknowledged
that 'it's also back with a difference.'
Details
of
bulence
how strategic planning systems have been adapted
to increasingly
business
unstable,
unpredictable
are sparse. Descriptions
environments
of strategic
are available
for some com
planning
practices
Electric
e.g., General
panies,
(Aguilar, Hamer
mesh
and Brainard,
1993; Slater,
1999), Royal
Dutch/Shell
(De Geus,
1997), MCI
(Simons and
Weston,
1990), and PowerGen
(Jennings, 2000),
while Wilson
(1994) provides more general evi
dence on changes
in strategic planning practices.
the evidence
less to a 'decline
Overall,
points
of strategic planning'
1994a), than to
(Mintzberg,
fundamental changes in the ways in which compa
nies undertake their strategic planning.
evidence
Empirical
evidence
of
Empirical
points to the coexistence
formal and informal strategic planning processes.
some form of
Most
maintain
large companies
formal
Bain
&
strategic planning.
Company's
annual
as the most popular
identifies strategic planning
and widely
utilized
of any management
tool
while
studies
the
American
1999),
(Rigby,
by
and Quality Center
(1996a,
Productivity
1996b)
of strategic
report features
systems
planning
survey of business
Copyright ?
2003 John Wiley
techniques
&
Sons,
consistently
Ltd.
4
and Rue
found external
(1980) and Kukalis
(1991)
Lindsay
to be positively
of
associated
with
uncertainty
completeness
et al. (1986) found that
processes.
planning
Similarly,
Grinyer
the use of specialist planners was associated with the vulnerabil
core technology
to external
threats. However,
ity of companies'
Javidan (1984) found that increased external uncertainty
had no
significant
impact on the extent of planning.
Strat.
Mgmt.
J,
24: 491-517
(2003)
Strategie
strate
these changes in companies'
Investigating
to
richer
is
likely
require
practices
planning
gic
data than that used inmost prior studies. Boyd and
that researchers
(1998) observed
Reuning-Elliot
have
represented
strategic
complex,
planning?a
a few indicators.
construct?by
However,
despite their finding that 'strategic plan
that can be reliably mea
ning is a construct
state
indicators: mission
sured through seven
multidimensional
ment,
term
trend analysis,
goals,
annual
competitor
goals,
analysis,
short-term
action
long
research
The primary
plans,
questions
that the research
questions
addressed
were:
were
1. What
the principal features of the strategic
multi
planning systems of large, multibusiness,
national corporations?
2. What has been the impact of increased volatility
and unpredictability
of the business
environ
ment upon companies'
strategic planning pro
cesses?
3. To what extent do companies'
systems of strate
to
the rational, ana
correspond
gic planning
AND
approach
investigate how companies'
strategic planning
systems had adapted to increased environmental
turbulence, I adopted an exploratory methodology
to formal hypothesis
in preference
testing. This
was for two reasons. First, a major goal of the
research was to gather descriptive data on contem
To
porary strategic planning
rations and their changes
495
explicit attention has been given to the role of
the role
formal strategic planning. To understand
of strategic planning
pro
systems in companies'
cesses of decision making
and change,
the first
of these sys
task is to recognize the characteristics
The
trol.
The
Environment
tems.
evaluation'
and on-going
(Boyd and Reuning
indicators may
1998: 189), even multiple
Elliot,
of overall
the characteristics
fail to recognize
and
their links
planning
configurations
strategic
with other processes of decision making and con
RESEARCH QUESTIONS
RESEARCH METHOD
in a Turbulent
Planning
in large corpo
practices
over time. Second, there
to the design and func
is little theory relating
tions of strategic planning systems within organi
zations. Analysis
of the impact of organizational
and environmental
factors on the characteristics
of strategic planning processes
(e.g., Lindsay and
and
Rue, 1980; Javidan, 1984; Grinyer, Al-Bazzaz,
Yasai-Ardekani,
1986) has been based upon ad hoc
rather than any integrated theory of
hypothesizing
the design and role of strategic planning processes.
is not to imply that my
This
research was
or conduct. My goal was
a-theoretic in motivation
not simply to generate descriptive data, but to shed
the role of man
light upon wider issues concerning
agement in strategic decision making and corporate
the vast literature on organiza
change. Despite
staff-driven processes
associ
lytic, formalized,
ated with the 'design school' of strategic man
agement, and to what extent are they consistent
with
the emergent strategies
school' ?
associated
with
the
'process
I was guided by the
In researching these questions,
literature.
The
research
cited in the previ
existing
ous section suggested environmental
volatility and
have
the
effects on
uncertainty might
following
firms'
strategic planning
systems:
1. Redistribution
decision
of strategic planning
to
Earlier
studies pointed
making
authority.
as
environmental
turbulence
de
encouraging
au
of strategic decision-making
centralization
to
from
business
level
(Lind
corporate
thority
1980; Grinyer et al.y 1986) and
say and Rue,
role of staff planners relative to that
diminishing
of line managers
(Wilson, 1994).
2. Shorter
If strategic plan
greater uncertainty
ning requires prediction,
about the future should shorten planning hori
zons. Empirical
evidence
is mixed:
Lindsay
planning
horizons.
little
and Rue (1980) and Javidan (1984) found no
5
streams include, inter alia, organizational
Theoretical
ecology
(Hannan and Freeman,
1989), punctuated
(Romanelli
equilibrium
and Tushman,
1981;
1994), learning and evolution
(e.g., March,
Nelson
and Winter,
1982).
between planning
time spans and
relationship
external stability; Kukalis
(1991) found plan
shorter in unpredictable
ning horizons were
with high
and
markets
levels of innovation
competition.
tional adaptation
Copyright ?
to environmental
2003 John Wiley
change,5
&
Sons,
Ltd.
Strut.
Mgmt.
J, 24: 491-517
(2003)
R. M. Grant
496
3. Less formality
of planning processes.
Organiza
tional theory predicts
that less stable external
environments
should be associated
with
less
bureaucratization
and more
flexible
decision
(Burns and Stalker,
1961; Courtright,
making
and Rogers,
to
Fairhurst,
1989). In relation
to
relates
fixed
strategic planning,
formality
timescales for the planning cycle, reliance upon
extensive
documentation
and written
reports,
use of standardized methodologies,
and deploy
ment of planning specialists. The empirical evi
dence is mixed. Wilson
(1994) found external
to
led
greater informality
instability
(e.g., less
documentation
and more
flexible
schedules)
and Kukalis
that
(1991) observed
rates of external change (interpreted
increased
as 'envi
ronmental
increased the flexibil
complexity')
of
this did
ity
planning
practices. However,
not necessarily mean less detailed plans: Lind
say and Rue (1980) pointed to firms' attempts
to counteract uncertainty with greater planning
efforts.
Method
Most
studies of strategic planning processes have
used questionnaire
data with samples of between
48 (Grinyer et al,
1986) and 199 firms (Lindsay
and Rue,
data
1980). The result is quantitative
to statistical analysis, but
that can be subjected
which
fail to capture the richness
and complex
ity of firms' planning practices. As Ramanujam
et al. (1986: 348) observed:
'Planning systems are
multifaceted
that are con
management
systems
text embedded. Hence,
cannot
be adequately
they
in terms of one or two characteristics
described
such
as
based
Not
"formality".'
only
are
The
research
I selected
the international
oil majors
for my
research site for four reasons. First, the oil majors
were among the world's
largest industrial corpo
rations. By 1996, even after a decade of down
sizing and depressed oil prices, 10 of the world's
40 largest industrial corporations
(ranked by rev
were
oil
Second, the companies
enues)
companies.
were unusual in their complexity. They were verti
and multinational,
and
cally integrated, diversified,
the close linkages between
their activities
gave
rise to complex coordination
problems. Third, the
had traditionally
been at the leading
companies
of
edge
strategic planning practices:
they had pio
neered the creation of corporate planning depart
ments
and application
of economic
forecasting,
risk analysis, portfolio planning, and scenario anal
a radical trans
ysis. Finally, they had experienced
formation of their industry environment
from one
of stability and continuity
to one of uncertainty
and turbulence. After
several decades
of stabil
and
masters
when
had
been
of
ity
growth
they
their destiny,
was
their competitive
environment
thrown into turmoil by the oil shocks of 1973-74
and 1979-80,
the nationalization
of the reserves,
and the growth of competition
(Grant and Cibin,
1996).
The
listed
10 leading oil and gas oil majors
(as
in the 1997 Fortune Global
500) which
formed my study sample included the six surviving
'Seven Sisters'?Exxon,
Tex
Shell, BP, Mobil,
with a four compar
aco, and Chevron?together
to the ranks of the international
ative newcomers
ENI, Total, and Amoco.
majors?Elf
Aquitaine,
are
in
shown
1.
Table
They
Data
questionnaire
of
systems
descriptions
strategic planning
'thin,' they lack consistency
(Boyd and
1998: 182). To gain insight into
Reuning-Elliott,
how the different characteristics
of a company's
site
The
collection
research proceeded
as follows:
overly
system interacted and interrelated both
planning
with one another or with the other systems of deci
sion making,
and control, I adopted
coordination,
a comparative
case study approach. Because my
research
because
did not involve hypothesis
testing and
the goal was to identify commonalities
among
companies'
strategic planning
practices
rather than analyze cross-sectional
the
differences,
case
of
in
research
disadvantages
study
limiting
the research sample were less critical.
Copyright ?
2003 John Wiley
&
Sons,
Ltd.
1. I wrote
to the head
of corporate planning of
the vice president,
typically
each
company,
of strategic plan
director, or general manager
the
of
the research and
purpose
ning, outlining
Of
the
10, eight agreed
requesting cooperation.
to participate
(these are indicated in Table 1).
2. Interviews were arranged with the head of the
corporate planning group and with one or two
other strategic planning
where
professionals,
possible, with the manager with responsibility
for the administration
and support of the strate
At
five of the companies
gic planning process.
Strut.
Mgmt.
J,
24: 491-517
(2003)
Strategie
1.
Table
The
world's
10 biggest
oil
and
gas
Table
corpora
in a Turbulent
Planning
2.
The
Environment
interviewees
1996
tions,
Position (at the time
of interview)
Company
Company
Country
Sales
Employees
revenue
1996
1996 ($m)
Royal Dutch/Shell3
Neth./U.K.
128,174
Exxona
U.S.
119,434
Mobila
British
497
Petroleum3
Elf Aquitaine3
Texaco3
Amoco3
101,000
79,000
U.S.
72,267
43,000
U.K.
69,852
53,150
France
46,818
85,400
U.S.
44,561
28,957
38,844
38,691
34,513
83,424
40,820
57,555
32,726
41,723
ENI3
Italy
U.S.
France
Chevron
Total
Royal
Dutch/Shell
U.S.
3
in study sample.
Included
Source: Fortune Global 500,
(Shell, BP, ENI,
bers from finance
also interviewed
tionships between
other mechanisms
trol. Table 2 lists
Exxon
Planning
Management
Development
Manager,
Planning
Manager,
Corporate
Manager,
Planning
Corporate
Department
Corporate
Division,
Strategy
Corporate
Planning
Department
Assistant
Treasurer
Mobil
Vice
President,
Strategic
Planning
Global Industry Analyst, Strategic
staff mem
Elf, and Amoco)
resources
were
and/or human
in order to explore the rela
and the
strategic planning
for coordination
and con
covered
Planning
Vice
President,
Downstream
British Petroleum
Elf Aquitaine
Planning,
Division
Coordinator
Strategy
Manager,
Former
Strategy
Upstream
head of Chairman's
Texaco
Vice
President,
Corporate
and Planning
Director
of Planning
Manager,
Corporate
ENI
Director,
Manager,
Planning
Department
Director,
Deputy
and
and
and Control
Department
Director,
Deputy
Planning
Control
Department
planning
and
and Control
Personnel
and
Organization
Amoco
Director,
Market
Planning
Practice
Leader,
Analysis,
Strategic
Competency
Modeling
between
strategic planning and
coor
the other systems of decision making,
and
control
dination,
including: capital bud
financial
control, and human resource
geting,
management.
Planning
Strategy
Strategy
Planning
Director
of Organization
Executive
Development
and of strategic
department,
at
the
business
level;
planning specialists
the role of the strategic planning
process
within
the overall management
of the cor
office
Direction
Director,
Prospective
Economie
Strategie
Direction
Manager,
Prospective
Economie
Strategie
the following
the planning process,
the annual
including
individuals
involved, method
planning cycle,
content
and
the
and role of
ologies employed,
and
documents;
meetings
the structure and role of the corporate strate
poration;
the linkages
Group
Treasurer
General
areas:
gic
Strategist
Department
Former
General
1997.
interviews
Senior
Manager,
Group
Head,
at each com
the interviewees
were
The
interviews
conducted between
pany.
March
1996 and April
1997. The interviews
were semi-structured. Notes were taken during
the interviews
and full reports of the inter
views were written up immediately
after each
interview. The
Head of Group Planning
Organization
Effectiveness
Consultant
on the companies'
strategic planning processes.
some former strategic plan
this purpose,
ning managers were contacted.
For
3. Interview data were supplemented with infor
mation from case studies, research papers, and
These were
company
reports and documents.
sources
useful
of
historical
data
particularly
Copyright ?
2003 John Wiley
&
Sons,
Ltd.
4. A case study describing each company's
strate
was
Where
process
gic planning
prepared.
were
the
gaps or inconsistencies
apparent,
Strut.
Mgmt.
J, 24: 491-517
(2003)
R. M. Grant
498
interviewees were telephoned to request clarifi
cation or additional
information. Once written
case
was
the
returned to the pri
up,
study
interviewee
mary
(typically the head of strate
comment
for
and amendment.
gic planning)
Exxon
Economic
Review
Energy Review
Stewardship
Review
Approval by
Mgmt.
Committee
Financial
Forecast
Stewardship
Basis
Corporate
Plan
about
its strategic
planning
system
and
Group
Scenarios
The Business Planning
I
Cycle\ (annual)
|Chairman's|
Letter
Annual Budget
Investment
Reappraisals
very open
Shell_
The Strategic Planning Cycle I (as and when required)
Discuss
ionwith
contact
director
Business
Plans
The amount and quality of the data varied between
the companies depending on their degree of coop
eration and their concerns over disclosing
propri
etary information. For example, while Shell was
-^
Country
(Guidelines!
Country
Premises
Appraisal
I
[
r
Country
Business
Plan
Group
Premises
CL
Group
Resources
Review
Texaco
Mobil
Exec. Committee
Message
Strategic Outlook Review
Business Reviews
Annual
Performance
Review
Corporate
Strategic
Outlook
Y
Stratview
(20 year
forecast/scenario)
Tactical
Plans
(1 year)
performance
targets
capex
budget
operating
budget
| budge
Formulationof 5-year
Strategic Plans
Corporate Strategic Plan
Business Group Plans
Business Unit Plans
X
Financial
Plan
Annual
Performance
Commitments
Performance
Appraisal
Also, ongoing
performancereview
K^gert
Corporate
Approval
ENI
Amoco
Corporate Strategic Plan
Economic Forecast
Market Forecast
Discussion
with top
management
team (SPC)
Draft
Business
Plan
Revised
Business
Plan
Annual
Performance
Plans
Accountability, Mgmt
individualobjectives
Corporate issues
Financial& Strategic
Directives to
Business Sectors
Performance Appraisal
Capex Budget
v
Performance Reporting
& Appraisal_
Planning Dept. issues:
Economic & Energy
Scenarios
Project ENI (statement
of strategic direction,
financial forecast, &
provisional capex budget
Preliminary
Strategic Plans
prepared by
Sectors and
Business Units
Planning Dept. issues|
Revised Scenario
Strategic Plans provide basis for
Performance targets
("management-by-objectives")
Annual budgets
Corporate Plan
approved by
Board
Planning Dept.
consolidates Strategic
Plans to create draft
Corporate Plan
Elf
Scenario
Analysis
Prospective
Studies
Divisional
Strategic
Plans
Performance
Auditing
Approval by
Exec. Mgmt.
Committee
Investment
Reappraisals
Discuss
ionwith
Strategy
Group
Divisional
Annual
Budgets
2003 John Wiley
Corporate
Plan
Approval of
major projects
Figure
Copyright ?
Approval
by Exec.
Mgmt.
Committee
& Sons, Ltd.
1.
The
companies'
strategic
planning
cycles
Strut. Mgmt. J, 24: 491-517
(2003)
Strategie
in a Turbulent
Planning
as to some features
secretive.
Exxon was highly
methods
employed,
At BP and Shell, data collection was hampered
changes which meant
by large-scale organizational
Environment
499
over
of energy markets
the
and
supply, prices,
planning period?demand,
were not so much
forecasts
margins?which
as a set of assumptions
to
relating
prices and
that
demand
conditions
and
provided a
supply
common basis for strategic planning across the
that these companies'
systems
strategic planning
a detailed
were in transition phase. Nevertheless,
case study was prepared for each company describ
the
ing the main features of strategic planning,
over
their
role
and
in
these
time,
systems
changes
within broader management
processes.
Some
company.
greater
put
companies
empha
sis on scenarios?alternative
in the energy
developments
views of possible
sector. Second, cor
porate management
provided overall direction
to the planning process through a statement of
A key
and expectations.
priorities, guidelines,
was
of
this
direction
aspect
setting company
THE MAIN FEATURES OF STRATEGIC
PLANNING AMONG THE OIL MAJORS
targets (e.g., 'raise return on
performance
to
12%,' 'reduce costs per
capital employed
barrel by 10%,' 'a 110% reserve replacement
rate,' 'reduce the ratio of debt to equity ratio
to 25% by 2000'). Guidance
often related to
wide
The
strategic
planning
cycle
in a
in the sample engaged
the companies
an
around
built
formal, strategic planning process
annual planning cycle. Each company's
planning
cycle (with the exception of BP, which declined to
is shown
its planning framework)
make available
in Figure 1. Despite
between
differences
compa
nies in the depiction
of their planning processes
and the terminology
it, the
they used to describe
similarities were sufficient to identify a 'generic'
All
strategic planning cycle (see Figure 2).
The principal
process
stages of the planning
common to all the companies were the following:
strategic plans.
preparing
These guidelines
and assumptions
comprised
two major elements. First, a view of the external
environment: This typically included guidance
1. Planning
Guidelines
Forecasts,
scenarios
2. Draft
allocation,
core
'to take
businesses,'
shift
advantage
'to
investment
on
refocus
of
opportu
'to increase the
and East Asia,'
our
in
reserves.'
of
gas
hydrocarbon
proportion
were
for
2. Draft business plans. Strategic plans
the individual businesses
mulated
bottom-up:
their strategic
took the initiative in formulating
nities
in China
3. Discussion
ness plans
The draft busi
corporate.
to the corporate
submitted
some initial analysis
After
by
with
were
headquarters.
6
For most companies,
strategic planning was a three-stage pro
cess: business
unit strategy, divisional
strategy, and corporate
as a two-stage
I treat strategic planning
strategy. For simplicity,
between
process distinguishing
corporate
strategy and business
and business
unit
level strategy that comprised
both divisional
strategies.
4. Revised
Business
Plans
3. Discuss
ion with
Business
Plans
'to
e.g.,
to upstream,'
downstream
plans.6
1. Planning guidelines.
The starting point for the
annual planning
cycle was an announcement
and
the
corporate headquarters of guidelines
by
to
in
used
the
businesses
be
assumptions
by
their business-level
resource
from
Corporate
&
\
6. Corporate
Plan
v
assumptions
5. Annual
Strategy
Capital &
targets &
directives
Operating
Budgets
T
7. Approval
by Board
8. Annual
9. Performance
Performance
Appraisal
Figure
Copyright ?
2.
2003 John Wiley & Sons, Ltd.
The
generic
Targets
strategic
planning
cycle
among
the oil majors
Strut. Mgmt. i., 24: 491-517
(2003)
500
R. M. Grant
the corporate
held between
sional
was
staff, a meeting
planning
senior corporate and senior divi
These
management.
face-to-face
meet
ings lasted between 2 hours and a full day and
the rationale for the strategies being
discussed
of these
the
implications
pursued,
performance
of
the
and
the
business
strategies,
compatibility
strategy with corporate goals.
4. Revised business plans. The draft business plans
were then revised in the light of the discussions.
5. Annual capital and operating budgets. The stra
linked with
tegic planning process was closely
bud
the annual budgeting
process. Although
and administered
by the
geting is coordinated
the first year of the
controller's
department,
the basis for
strategic plan typically provided
next year's capital expenditure budget and oper
ating budget.
6. Corporate
plan. The
from the aggregation
which was undertaken
the prior year.
For companies whose financial years corresponded
to calendar years, the planning cycle began in the
spring, with corporate and business plans finally
or December,
in November
and perfor
approved
mance
reviews occurring around the beginning of
the following
The
year
(see Figure
3).
of corporate
role and organization
staffs
planning
a corporate staff
of the companies
possessed
unit responsible for strategic planning headed by a
vice president or a director of corporate planning or
strategy (or, in the case of Exxon, a general man
All
corporate plan resulted
of the business
plans,
by the corporate plan
functions of
included:
departments
ager). The
ning department.
7. Board approval.
of the
The final formality
strategic planning formulation was approval of
the corporate and business plans by the board
of directors.
8. Performance
targets. From the corporate and
business plans a limited number of key finan
cial and strategic targets were extracted to pro
and
for performance monitoring
to
life
of
the
the
plan
appraisal. Targets related
with a more detailed emphasis on performance
targets for the coming year.
9. Performance
plans
appraisal. The performance
for corporate-level
the
basis
appraisal
provided
vide
to
In addition
performance.
a
event
ongoing performance monitoring,
key
was the annual meeting
the top man
between
team and divisional
senior managers
agement
to discuss each business's
performance
during
of business-level
the basis
Development
of corporate
Board approval
of corporate
& business
plans
these corporate
planning
technical and administrative
Providing
to strategic management
activities.
In
for
corporate
companies,
responsibility
team. The
lay with the top management
was
rate planning
staff's responsibility
port
the corporate
executive
support
all the
strategy
corpo
to sup
team in its strate
in provid
role (for example,
gic management
the
and
and
information
exploring
analysis,
ing
courses
and
of
alternative
assumptions
impacts
the planning pro
of action) and to administer
cess.
Business
performance
between
review meetings
divisional
and corporate
management_
plan,
budgets,
and
performance
Corporate
plans_
Guidelines &
Forecasts
Business
issued
level
strategic
plans
discussed
Formulation
of business
level
with
corporate
strategic
management
plans_
Figure 3.
Copyright ?
2003 John Wiley & Sons, Ltd.
Timing of the planning cycle
Strut. Mgmt. J, 24: 491-517
(2003)
Strategie
political, and market fore
Preparing economic,
and
risk
casts,
analysis,
analysis,
competitor
of the business environment
other investigations
to assist strategic planning through the company.
between corporate and
Fostering communication
In some of the compa
business management.
Shell, Mobil, ENI, and Amoco?
nies?notably
corporate planners liaised with divisional man
agers and divisional planners, and fostered dia
log through a common format and terminology
for strategic plans. In other companies?notably
levels of involvement
Exxon and BP?high
by
was viewed as a bar
staff
corporate planning
rier to strategy
chief executives
dialog
and
between
business-level
top manage
corporate
ment.
Internal consulting.
To the extent
rate planning departments
became
of expertise about strategy analysis
gic planning techniques,
they tended
roles in relation
internal consulting
nesses and other functions.7
Who are the corporate
repositories
and strate
to develop
to the busi
planners?
certain other corporate
law, and information
systems),
functions
(finance,
none of the com
as a career
panies recognized
strategic planning
track. Corporate
planners were drawn from line
the businesses
and,
management
positions within
in some cases, from other staff functions
(e.g.,
finance and IT). Planners typically spent between
3 and 5 years in corporate planning posts before
returning to a line management
position. The only
of
career
track
planners
were,
first,
the
few professional
economists
that resided in cor
some
and, second,
porate planning
departments
in two companies
corporate planning managers
with significant public ownership,
ENI and Elf,
who
the plan
spent 15 years or more within
that
ning function. Several companies
explained
their staffing of corporate planning departments
reflected their intention to combine
the analytic
skills of younger
staff with
the deep experien
tial knowledge
of longer-serving
At
managers.
all the companies
corporate planning assignments
were
as important career development
viewed
and a
stages offering
exposure
corporate-level
7
The
are reflected
activities
of corporate planning
departments
in their organizational
structures. Organization
charts for the
are available
from the author.
planning departments
Copyright ?
2003 John Wiley
&
Sons,
Environment
for
perspective
'big-picture'
'fast
501
track'
execu
tives.
Differences
Within
notable
between
this common
differences
the companies
there were some
framework,
In par
between the companies.
ticular:
1. Formality
and regularity.
Several companies,
Elf
and
ENI, had planning
notably
Aquitaine
were
more
formal
that
systems
(e.g., greater
reliance upon written reports and formal pre
sentations), more regular (in terms of a fixed
annual cycle), and less flexible
than those of
were
the other companies.
These differences
related primarily to differences
in overall man
and
ENI
had retained
agement
styles?Elf
more traditional hierarchical
structures and for
to the
mal administrative
styles, in contrast
BP
other companies
and
Tex
(most notably
a
more
that
had
aco)
encouraged
entrepreneurial
that corpo
Unlike
examples
in a Turbulent
Planning
Ltd.
management
style. The degree of formaliza
tion of the planning process was also linked
to the emphasis given to performance
targets
in the strategic planning
process. The com
on
that placed
the biggest
panies
emphasis
establishing
rigorous
businesses?BP,
financial
Texaco,
and
targets for their
Exxon,
in
par
had planning processes
that were
informal.
comparatively
Conversely,
companies
that emphasized
Elf,
strategic control?ENI,
and Shell?placed
greater emphasis on writ
ten strategic plans and formal approval pro
cesses. In terms of regularity, all the companies
pursued an annual planning
cycle; however,
some companies?notably
Amoco,
Shell, and
ticular?also
Mobil?had
moved
away from standardized,
calendar-driven
annual cycles;
they updated
environmental
analysis and performance
targets
but called for
(or more frequently),
annually
revision
of business
strategies
only when
cir
cumstances
required.
time horizon of strategic plans.
Strategic
plans were
typically for 4-5 years, although
in upstream planning
horizons
tended to be
to 15 years in the case of Exxon.
longer?up
2. The
Several companies?notably
Shell, Texaco and
a dual system of planning: long
Elf?operated
term planning
that extended
for 10 years or
more and was typically qualitative and scenario
based,
and medium-term
Strut.
Mgmt.
planning
that was
J, 24: 491-517
(2003)
R. M. Grant
502
more detailed
and quantitative
a greater level of commitment.
longest horizon for its strategic
and involved
Shell had the
to
plans?up
20 years?however,
these long-term
strategic
the
took
forms
of long-term views of
plans
the business
and the environment
where
the
was
to
term
encourage
primary object
long
about
the business
in the
light of
and
busi
underlying
technological,
political,
ness trends. Texaco maintained
15- to 20-year
though, like Shell, Texaco's
strategic views,
long-term plans involved no formal resource
thinking
commitment.
in the role and activities
3. Differences
of planning
The emphasis placed upon differ
activities
varied across
planning
the companies.
that had
Among
companies
such
internal
undergone major
reorganizations,
as Amoco
and ENI, the strategic planning func
tion played a prominent
role as a coordinat
departments.
ent strategic
Thus, follow
ing and integrating mechanism.
around
17
Amoco's
1995
ing
reorganization
business separate groups, the strategic planning
department was actively involved in developing
across the different business,
e.g.,
cooperation
in creating cross-business
'umbrella strategies'
more
A
for individual countries.
intervention
ist role of corporate planning departments was
whose
those companies
also apparent within
corporate planners fulfilled an internal consult
internal consulting
Shell's
ing role. Although
in 1992, Shell's planning
unit was disbanded
an active role in promoting
group maintained
ideas and
and diffusing
strategic management
ENI's
planning depart
techniques.
Similarly,
a strong advisory role and was
ment maintained
in disseminating
corporate-level
goals
with
the broadest
and priorities.
Companies
roles for their corporate planners also had the
biggest corporate planning departments.
active
Table
key features of the individual
strategic planning systems.
3 summarizes
companies'
CHANGES
SYSTEMS
IN STRATEGIC PLANNING
lit
planning cycle and its key phases?remained
tle changed,
the content of strategic plans,
the
and the role of plan
strategic planning process,
within
the
systems
ning
companies' management
changed
The
planning
acknowledged
major changes
eight companies
in their strategic planning practices over the previ
ous decade and a half. While
the basic framework
terms of the strategic
of strategic planning?in
Copyright ?
2003 John Wiley
&
Sons,
Ltd.
heritage
of
'Big Oil'
accounts and prior research
1987), Iwas able to identify the
(notably, Grayson,
features
of
the
major
companies'
strategic planning
of the 1980s. Corpo
systems at the beginning
rate planning had been adopted by most of the
From
the interviewees'
companies
during the early 1960s, in response to
the increasing difficulties
of coordination
and con
trol that the companies
faced as they expanded
their vertical, geographical,
and product scope dur
the
postwar period. Strategic planning began
ing
within
their supply departments,
where planning
of international flows of oil and refined products
had developed
in forecasting
expertise
prices and
market
trends. By the late 1960s, most of the oil
had established
majors
corporate
planning
depart
ments.8
The
task of these corporate planning
primary
was
trends in energy mar
departments
forecasting
kets and the general
economy. Macroeconomic
of the
forecasts provided
the basis for predictions
demand, supply, and prices of oil and refined prod
ucts upon which
outputs, revenues,
profits, and
investment
capital
requirements
were
projected.
all the planning departments
included an
Hence,
unit typically
economics
headed
by a profes
sional economist.9 Diversification
during the 1970s
of
the
role
the
corporate planning depart
expanded
ments.
1980 the corporate planning
By
depart
ments were involved in: forecasting demand, sup
scenar
creating
ply, prices, and profit margins;
risk analysis;
building
to link economic
and
ios; undertaking
country
corporate financial models
8
Conoco
in 1953, Stan
its planning
department
Richfield
in 1962, Royal
Atlantic
in 1967, British Petroleum
and
and Elf Aquitaine
Dutch/Shell
in 1974.
Total in 1968, ENI in 1971, and Chevron
9
to provide
The typical functions were
'appraisals of domestic
and international
patterns and the potential
political-economic
... macroeconomic
of these patterns;
economic
consequences
dard Oil
established
in
(Ohio)
1961,
of the U.S.
[and] political,
economy;
predictions
in support
and energy policy analysis and consultation
of policies,
and environmental
of the development
strategies,
and Public
Governmental
assumptions
by the Planning Division,
studies
All
considerably.
and
economic
Affairs
Wycoff,
Strut.
units'
and other Company
Division,
(memo by Robert
Vice President,
18, 1974).
Planning, Arco, November
Mgmt.
J,
24: 491-517
(2003)
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Strut. Mgmt. J, 24: 491-517
(2003)
R. M. Grant
506
to company
forecasts
financial
perfor
the annual strategic plan
administering
ning cycle; developing
planning methodologies
and techniques; advising corporate and divisional
on strategic
issues; and providing
management
strategic analysis of major capital investment pro
market
mance;
jects.
In administering
the strategic planning
pro
the corporate planning departments
became
intermediaries
between
and
corporate
important
divisional
corpo
management?communicating
rate goals and priorities
to divisional managers,
to top
business-level
assessing
plans presented
cess,
and aggregating business-level
management,
plans
into corporate plans. This pivotal role resulted in
them exerting
influence not just over
significant
the process of strategy formulation,
but in many
instances over its content as well.
Forces
for change
The transformation of energy majors' market envi
to uncer
ronment from stability and continuity
tainty and turbulence also created a far more hos
The catastrophic
fall in the price
at all
increased competition
value chains put prof
stages of the companies'
a
its under considerable
pressure. Simultaneously,
and leveraged buyouts cre
surge in acquisitions
ated amore active market for corporate control that
to improve returns to
top management
pressured
shareholders. This transformation had far-reaching
struc
for the companies'
strategies,
implications
tile environment.
of oil in 1986
and
tures, and management
(Cibin and Grant,
processes
their strategic planning systems.
1996)?including
The
changing
of strategic
foundations
planning
as
forecasts
of using medium-term
and corporate
for business
plans
painfully apparent during the 1980s, when
The dangers
a foundation
became
and market fore
of macroeconomic
of crude oil prices?declined
casts?especially
As late as 1992, BP was brought to
precipitously.
the brink of catastrophe as the result of a strategy
the accuracy
an oil price of $20 a barrel. CEO
remarked:
subsequently
and the recent pattern of the economic
reality,
some guidelines
and from
that set yourself
which
you can judge your own performance.
the 1980s and 1990s, all the companies
During
reduced
their forecasting
efforts and downsized
or eliminated
eco
their economist
staff. Exxon's
nomic forecasting and analysis unit was reduced to
a single staff economist.
In place of forecasts,
the
external analysis shifted in two direc
companies'
tions. The first was scenario planning. While
Shell
was the only company
to base its entire strate
scenario anal
gic planning process upon multiple
other
scenario
ysis,
companies
adopted
planning
to a more limited extent, for example,
to explore
issues (such as the future of OPEC or
particular
strategies for the former Soviet Union). Replacing
forecasts with alternative scenarios of
single-point
the future had important implications for the nature
of strategic planning.
Instead of a single basis
for competitive
and resource deploy
positioning
a
was
scenario
tool for contingency
ment,
analysis
that
fostered
alertness
and responsiveness
planning
to
decision-makers
cir
among
changing market
cumstances. The reluctance of some companies
to
as a basis for strategy
use scenarios more widely
formulation was partly the result of the perceived
costs of developing
and disseminating
scenarios in
terms of management
time.
The second response was to replace forecasts of
about these vari
key variables with assumptions
to the prices of crude
in relation
ables. Thus,
and key
oil, natural gas, and refined products
intro
rates, all the companies
currency exchange
a basis
duced
'reference prices' which
provided
for financial
this
and performance
targets.
projections
basis for planning
had far
for the nature of strategic
reaching
implications
The
of reference prices and
purpose
planning.10
other fixed assumptions
about the environment was
Again,
shifting
not to provide a basis for strategic
to provide a consistent
foundation
but
decisions,
which
against
could be targeted and mon
financial
performance
itored. This shift of planning
'
to
that had assumed
resource-deployment'
John Browne
and-performance-goals'
return to below.
We
some
gave up trying
time ago?we'd
that even
dict
just
what
learned
would
from
the most
the reality
All
variables.
Copyright ?
to forecast
&
Sons,
from
4strategy-as
strategy-as-aspirations
is a key
transition
that I
happen
experience
can't pre
10
Exxon
models
sophisticated
or any of the other key
of oil prices
you can do is to look at the current
2003 John Wiley
cycle
against
and several other companies
used the term 'reference
to price
BP used the term 'mid-cycle
(referring
prices'
across the economic
that were averaged
cycle).
assumptions
prices.'
Ltd.
Strut.
Mgmt.
J,
24: 491-517
(2003)
Strategie
informality
Growing
of the planning
process
Shifting
The planning
systems of the 1970s and 1980s
were highly formalized
in terms of documentation,
formal presentations,
emphasis on techniques and
analysis, and the central role of spe
quantitative
cialist planners. By
1996-97,
systems
planning
were far more
less empha
informal: there was
sis on written documentation,
strategic plans were
on set
was
less emphasis
shorter, and there
between business
strategy presentations. Meetings
level and corporate executives became shorter and
to discus
shifted from presentation
the balance
the companies
reported that the annual
exec
between
corporate and business
meetings
to discuss
utives
business-level
strategic plans
were increasingly
of a
focused around discussion
at strategy and
issues. Similarly,
few underlying
sion. All
At Mobil
from
performance
2-day meetings
discussion
became
set of performance
shorter:
become
reviews were
with
each
with
to
by business managers
presentations
shorter, more informal interactions where busi
ness group management
reported to the Execu
on 'How we did. What we did.
tive Committee
What we didn't do.'
formal
At
reviews'
the annual
Exxon,
'stewardship
Man
the
the divisional
and
between
president
or
were
cut
4
from
Committee
3
agement
days
down to a half-day.
These meetings
focused
indicators
upon reports of key performance
we
feel good about, and things we
'Things
bad about.'
and
feel
formality was also evident in a move from a
regular, standardized planning cycle to more flex
ible and ad hoc process. As noted above, Amoco
allowed its business groups to develop new strate
gic plans as and when needed, while the long-term,
scenario-based
projections
by Shell and Texaco
Copyright ?
less
of the external
two
changes in
by
first, a shift of
strategic planning responsibilities:
to
from
corporate
responsibility
decision-making
a
of
shift
business-level
second,
managers;
plan
staff to line
from planning
ning responsibilities
Increasing volatility
environment was accompanied
From
corporate
Sons,
to business
management
management
late 1990s, strategic planning was pri
a
process. The content of the
marily
bottom-up
were
determined
mainly at the busi
strategic plans
ness unit and divisional
levels under the principle
chief executives were responsi
that business-level
their business
ble for their businesses?including
By
the
manage
strategies. This concept of business-level
ment
'owning' the business and being responsible
to shareholders
for its
and corporate executives
a
was
strong philosophy
management
particularly
at Exxon
influence was
and BP. The corporate
context
in
for business
the
establishing
primarily
to question,
formulation
and
strategy
intervening
raised autho
during the 1990s all the companies
rization levels of individual executives.
This transfer of strategic planning responsibili
ties from corporate to divisional
level was part of
a broader shift in the relationship between corpo
rate and divisional management.
The key priori
ties of the 1990s were speedier decision making
to respond to fast-changing
external circumstances
and the increasing returns of shareholders. Strate
less about planning
systems became
gic planning
the majors'
long-run growth and stability, and
more about squeezing
from
increased profitability
slow growth businesses.
If business-level
were
to
for strate
take
managers
responsibility
was to
while
corporate management
gic decisions,
be responsible
for shareholder returns, decentral
ization of strategic decision making
needed to be
matched by divisional executives being unambigu
for divisional
ously accountable
performance.
By
the
1996,
primary focus of the strategic planning
formance
&
responsibilities
planning
and uncertainty
processes
regular.
2003 John Wiley
507
mature,
Less
became
strategic
Environment
Decen
and cajole business managers.
criticize,
tralization of strategic management
authority was
indicated by the increasing
levels of discretion
unit and divisional man
exercised
by business
over
agers
capital expenditures. As Table 3 shows,
downsized
division
in a Turbulent
managers.
on open discus
and more
piece presentations
discussion
and the exchange
sion. To encourage
were adopted: BP dis
of ideas new rules-of-play
the use of multiple
couraged
graphs at strategy
of slides at
the
number
Amoco
limited
meetings;
review meetings,
performance
focused around just a smaller
variables. As a result, meetings
Planning
Ltd.
Strut.
of
the
targets.
majors
was
medium-term
If the primary
Mgmt.
responsibility
J, 24: 491-517
per
of
(2003)
508
R. M. Grant
divisional
management
was
to achieve
the levels of
expected by corporate management,
performance
the inevitable corollary was that divisional man
agement must be free to select strategies capable
of delivering
the required performance.
The role
of the corporate headquarters
in strategic planning
focused less on endorsing and approving business
level strategies and more on negotiation with the
over
divisions
levels and
expected
performance
and
the
questioning
challenging
thinking behind
to improve the
in
the proposed
order
strategies
of
divisional
decision
strategic
quality
making.
From
staff to line managers
Decentralization
rate to business
of strategic planning from corpo
levels coincided with a declin
role
of
staff as corporate and divi
ing
planning
sional line managers
became
respon
increasingly
sible for strategic planning. This diminishing
role
of strategic planning staff reflected the increasing
on executives
at all levels.
personal responsibility
to
became more accountable
As chief executives
shareholders
sional
for corporate performance
and divi
to
became
increasingly
responsible
heads
their chief executives
for divisional
performance,
so these executives
became individually
responsi
from
bility for strategy. The shift of responsibility
to executives
staff planners
is indicated by the
shrinking size of corporate planning departments
of corporate plan
(see Table 4). This downsizing
was
staffs
reinforced
the
reduction in eco
ning
by
activities
and the outsourcing
nomic forecasting
to consult
of intelligence
and analysis
activities
In
staff
became
addition,
ing companies.
planning
Table
4.
Numbers
rate planning
Amoco
BP
Elf
ENI
Exxon
Mobil
Shell
Texaco
a
Estimated.
1993
1996
90
48a
n.a.
n.a.
42a
38
48b
40
60
12
15
72
20
n.a.
23
n.a.
30
3
14
65
17
12
17
27
In 1986 Exxon's
corporate
plan
60.
ning staff numbered
b
In 1985 Shell's
Estimated.
corporate
plan
ning
Copyright ?
staff numbered
2003 John Wiley
Sons,
The
content
of strategic
plans
A detailed analysis of the content of strategic plans
was not possible
to the reluctance of the
owing
to
make
available
their plans. Only
companies
two of the companies made available recent plan
it was clear from
Nonetheless,
ning documents.
the interviews
that some significant
changes had
occurred
in the content
decade. Three
previous
the companies:
of strategic plans over the
trends were common to all
1. Shortening
time horizons.
Table 3 shows the
periods for which the companies prepared their
strategic plans. All the companies
reported a
shortening of their planning horizons over the
previous decade.11 Among my sample, five out
of the eight companies had planning periods of
or
less.
However,
the
major
contrac
medium-term
term scenario
and longer
strategic planning
planning (Shell, Texaco, and Elf)
increased their emphasis on medium-term
plan
of longer-term
ning at the expense
projec
tions. Foreshortened
horizons were
planning
most
strate
among companies whose
were
dominated
gic priorities
by restructuring,
cost cutting, and the need to boost shareholder
return (e.g., ENI's
strategic plans period was
4
A
second
trend was to link plan
only
years).
more
ning periods
closely to the lives of invest
apparent
ment.
Thus, Exxon and Elf each required their
sector to plan for 10-15 years as
upstream
11
This was consistent with Grayson
identified only
(1987), who
one oil company with a planning period of less than 8 years.
54.
&
companies.
tion of companies'
resulted,
strategy horizons
not from formal changes to their planning peri
ods, but from shifting their emphasis from the
term. For
long term to the short and medium
the companies
in both
that engaged
example,
departments
1990
and throughout
the (approximately)
100 'natural
some 470 planning
there were
businesses'
staff.
at
at
the
of
the
72
ENI,
1995,
Similarly,
beginning
were
staff
outnumbered
the
corporate planning
by
416 strategic planning staff located in the operating
5 years
in corpo
employed
located within the operating divisions.
increasingly
For example, at Mobil
in 1996, corporate planning
staff numbered only 13; however, each of Mobil's
13 business
units,
groups had its own planning
Ltd.
Strut.
Mgmt.
J, 24: 491-517
(2003)
Strategie
compared
chemical
to 5 years
for their downstream
and
less concerned
became
of action, commitments
and resource deploy
greater emphasis upon more
plans. Strategic plans
with detailed programs
to particular
projects,
and placed
broadly defined goals. For example, Amoco's
strategic plan of 1995-99 was specified almost
entirely in terms of 'strategic themes' and 'spe
cific strategies and goals'. These strategies and
goals related to themes that included finan
ments,
targets ('net income to exceed $3 billion
cost
and cost reduction
1998')
('achieve
by
of
billion
from
$1-2
savings
restructuring')
and international expansion
(e.g., 'to develop
a global gas business').
This shift to broad
cial
strategic direction is also indicated by the adop
tion by all the companies
(with the exception
of Exxon and Elf Aquitaine)
of statements of
'mission' and/or 'vision' to communicate
and
their
these
mission
guide
strategies. Although
and vision statements were partly exercises
in
the interviewees pointed to
image management,
their significant role in the strategy-making
pro
cess in terms of creating a sense of corporate,
for corporate scope
boundaries
identity-setting
and establishing
long-term strategic intent.
3. Increased
emphasis on performance
planning.
In discussing
the shifting relationship between
and divisional
in the plan
levels
corporate
I
the
noted
processes,
ning
increasing empha
sis placed on performance
the
targets. During
the strategic plans of all the com
1990s,
shifted
their focus away from fore
panies
casts and specific strategic decisions
that spec
ified timetables and resource deployments,
and
towards targets relating to financial and opera
tional performance
targets. Thus, of Amoco's
six strategic
themes of 1995-99,
four were
couched entirely in terms of performance
out
comes rather than commitments
to take specific
actions. The growing preoccupation
with per
formance goals was also evident in the increas
ing emphasis placed upon short and medium
performance planning within the strategic plan
different terminology?
ning process. Despite
'performance
Copyright ?
plans'
2003 John Wiley
(Amoco),
'management
&
Sons,
by
Ltd.
Environment
(ENI), 'stewardship
objectives'
and 'performance commitments'
elements were similar:
sectors.
to strategic direc
2. A shift from detailed planning
tion. Increased environmental
instability result
ed, not only in less formality and rigidity of
the planning process, but also in less precision
and greater flexibility
in the content of strategic
in a Turbulent
Planning
509
basis'(Exxon),
(Mobil)?the
Financial
focused
total
upon
targets. These
profit (typically net profit and/or operating profit,
and in some cases economic
profit, e.g. EVA)
and profitability
ratios (return on capital em
ployed was the most widely used). Several com
return (typi
panies set targets for shareholder
to
in
relation
the sector as
cally defining targets
a whole,
e.g.,
a return
'to achieve
to shareholders
in the top quartile of the industry').
these might
targets. For upstream
Operating
include production, wells drilled,
lease agree
reserves
ments
For
added.
downstream
signed,
these might include throughput, capacity utiliza
tion, inventories.
Safety and environmental
objectives.
Strategic
mileposts?intermediate
objectives
were
which
indicators
that a strategy was
on track. For a division,
strategic mileposts
relate
might
cost
specific
introductions,
to entry into specific countries,
reduction
targets, new product
and divestments
of
specified
assets.
Capital
expenditure
limits.
these different objectives,
the overwhelm
for
all
the
ing priority
companies was financial
was
This
in the tools
evident
targets.
emphasis
Among
and
techniques
used
the
by
companies'
plan
all the strategy con
ning departments.
Despite
cepts, tools, and techniques developed
during the
to
1990s?from
the
competitive
analysis
analyses
of resources and capabilities?most
of the new
tools and techniques deployed
by the oil majors
in nature. These
during the 1990s were financial
included new measures of profitability
(e.g., EVA),
techniques of shareholder
options analysis.
were
The
companies
value
analysis,
and real
aware of the
acutely
of
short-term
(annual) per
problems
reconciling
formance
targets with
longer-term
performance
effective
goals?while
performance
monitoring
required quarterly and annual appraisal, maximiza
tion of shareholder value required long-term profit
maximization.
to combine
gic
with
(e.g.,
all the companies
Hence
sought
short-term profit targets with strate
and operational
targets that were consistent
longer-term competitive
building
advantage
the operating targets and strategic mileposts
Strut.
Mgmt.
J.,
24: 491-517
(2003)
R. M. Grant
510
to above). Mobil,
'balanced scorecards'
referred
and Amoco
Texaco,
for achieving
consis
short-term performance
tency between
targets and
balanced
longer-term
strategic goals. At Mobil,
scorecards played a key role in 'cascading down'
used
corporate and divisional
strategies to business units
and individual departments.
to performance plans
The essential complements
were performance
reviews. At all the companies,
reviews of business
performance
against perfor
mance
targets and strategic plan were central ele
ments of the strategic planning process. Most com
reviews based
panies had quarterly performance
on the businesses
submitting written performance
informal discussion
between
divi
reports with
sional and corporate management.
The major busi
were
at the annual
interactions
ness-corporate
reviews that took place in the early
performance
of
the
calendar
face-to
year and involved
part
face meetings
between divisional and corporate top
management.
in the oil majors'
strategic planning
to a different
role for strate
pointed
practices
the companies.
The strate
gic planning within
Changes
systems of the 1960s and 1970s
gic planning
were mechanisms
for formulating
strategy?they
resources. By the
planned growth and allocated
late 1990s, strategy formulation was occurring, for
the companies'
interviewees
systems. When
gic planning
asked to identify the sources of critical
part, outside
of
strate
were
strate
in
had made
that their companies
gic
restruc
recent years?acquisitions,
divestments,
initiatives?it
and cost-cutting
turing measures,
was apparent that few had their origins
in the
from
the
that
companies'
strategic
plans
emerged
systems. The typical sequence was the
planning
decisions
other way round: strategic decisions were made
to the opportunities
and threats that
in response
incorporated into
appeared, and were subsequently
strategic plans. If the purpose of the strategic plan
to take strategic
ning system was not primarily
decisions,
what
Copyright ?
it play within
the com
The interview data pointed
role did
panies' management?
to three key roles.
2003 John Wiley
&
Sons,
as a context
for strategic
were
no
if strategic
systems
planning
longer the primary decision
paths for making
contexts
that influenced
strategy,
they created
the content
and quality of strategic decisions.
Even
Even
here,
the corporate
business-level
the mechanisms
through which
center
influenced
conventionally
forecasts and
strategies?providing
detailed scrutiny?had
eroded. This
progressively
left two key processes
which
the
corporate
through
to the quality of
contributed
planning processes
business-level
strategic management:
1. Influencing
the methodologies
and
techniques
corporate plan
planning. Although
to act as centers
continued
departments
of strategic
ning
of excellence
for strategy methods
and strat
of planning depart
egy techniques, downsizing
ments downsized
and increased reliance upon
outside consultants for analytical expertise con
strained this role. Some tools of strategy anal
used, including Porter-type
ysis were widely
value analysis,
shareholder
industry analysis,
and
game theory, appraisals of competencies
PIMS analysis, and the identifica
capabilities,
sev
tion of critical success factors. However,
THE ROLE OF STRATEGIC PLANNING
the most
Strategie
planning
decision making
Ltd.
eral companies, Exxon in particular, were skep
tical of most formal strategy techniques and the
that they
jargon associated with them, believing
created a barrier to deploying
experience-based
and hampered
the shift of strategic
knowledge
from planning
staff to
planning
responsibility
line managers.12
2. Providing
channels and forums for communica
tion and knowledge
sharing. All the companies
placed greater emphasis on the communication
and knowledge
sharing role of planning pro
cesses.
to promote
Indeed, the desire
dialog
businesses
and the corporate execu
between
strategy issues was the
for reducing the formality of the
planning process. This involved shifting empha
from formal presenta
sis of strategy meetings
discussion where assump
tions to face-to-face
and critical
tions and beliefs were challenged
tives
on fundamental
main motive
12
the experience
of General
Electric
This was consistent
with
where simplification
of the strategic planning
system was accom
panied by less reliance upon technical strategic analysis
(Aguilar
et al,
1993).
Strut.
Mgmt.
J, 24: 491-517
(2003)
Strategie
Shell and Exxon
trasting examples of this trend:
issues
identified.
provide
con
Shell has placed particular weight upon strategic
learning.
planning as a vehicle for organizational
Shell's
scenario planning process was primar
ily a process for sharing and integrating mul
and
bases from both within
tiple knowledge
'scenario-to
group. Shell's
discussion
work
framework
involved
strategy'
which
the
in
scenarios
would
shops
provide
foundation
for an interactive strategy formula
the organizational
tion. To maximize
learning
outside
the Shell
occurring through the strategic planning process,
to make explicit
the per
Shell has attempted
of
decision
and
the
various
ceptions
judgments
makers within the strategy process through tech
niques such as 'mental mapping.'
Exxon's emphasis was upon a strategic planning
process that was tightly integrated within a man
agement structure that stressed the close bonds
of communication
and accountability
between
each divisional
and the correspond
president
on the corporate man
ing 'contact director'
Thus, while Exxon had a
agement committee.
well-defined
system, the for
strategic planning
malities
discussion,
relating to the submission,
and approval of divisional
strategic plans were
and
inseparable from the regular communication
interaction between
the division presidents and
the management
committee
that allowed strate
gic plans to be informed and guided by the con
tinual
of divisional
integration
level knowledge.
and corporate
as a mechanism
Strategic
planning
coordination
for
on planning
as a process
Increased
emphasis
of communication
and knowledge
sharing was
intended not only to influence and improve strate
gic decisions, but also to provide a basis for coor
decision making. The inter
dinating decentralized
view data suggested
that increased environmental
turbulence
Planning
in a Turbulent
Environment
511
transition by the corporate center from detailed
control towards more general direction and guid
ance, and the increased
emphasis
placed upon
build
business-corporate
dialog and consensus
to
The
this
role
accorded
ing.
priority
coordinating
of strategic planning varied between
the compa
nies. In general, the more decentralized was strate
the greater the emphasis on
gic decision making,
as
a
device. Thus,
strategic planning
coordinating
Shell with its 200 separate operating companies
had long regarded its strategic planning process
as primarily a vehicle
for coordination
and con
sensus within
its far-flung business empire. Sim
as 17 separate
ilarly, once Amoco
reorganized
business
the corporate planning
groups,
depart
ment became increasingly concerned with provid
between
corporate and
ing vertical coordination
coor
business
and
horizontal
levels,
developing
different
business
dination, e.g., through involving
'umbrella strategies.' Exxon's
groups in country
emphasis upon strategic planning as a coordinat
ing device was a central rationale for embedding
its strategic planning process within ongoing dia
the divisional
and 'con
log between
presidents
tact directors.' Exxon's
head of corporate plan
ning described Exxon's
strategic planning as hav
evolved
ing
based'
from
a
'product-based'
to a
'process
system.
Strategic
planning
as a mechanism
for control
can be exerted
control which manages
the
through behavioral
and ap
inputs into decisions
through supervision
the
proval, and output control which manages
outcomes of decisions
(Ouchi, 1979;
performance
control over in
Eisenhardt,
1985). Establishing
and
creasing large
unwieldy corporate empires was
a major motive
for the adoption of strategic plan
Hierarchical
control
in organizations
and
ning. Corporate planning provided a mediumcontrol
mechanism
that
long-term
complemented
the short-term controls provided by budgeting
sys
tems. Under
the 'old model'
corporate manage
ment's ability to approve (or reject) business-level
had enhanced
the role of the strategic
as
a
planning system
coordinating device. As deci
sion making
had become
decentral
increasingly
was
a
a
there
structured pro
ized,
growing need for
cess of dialog, adjustment, and agreement to coor
to support
strategic and the resource allocations
these plans represented a form of input control.
func
By the late 1990s, strategic planning's
tion as a control system had shifted from one
based upon strategy content to one based upon
dinate
strategy outcomes defined in terms of the perfor
mance
that the strategy would deliver. This shift
was apparent from three types of evidence. First,
these
emphasis
on
dispersed
coordination
ber of the changes
Copyright ?
decisions.
was
already
2003 John Wiley
This
evident
described,
&
increased
from
a num
notably
Sons,
the
Ltd.
Strut.
Mgmt.
J.,
24: 491-517
(2003)
R. M.
512
Grant
that shaped business-level
the corporate guidelines
strate
strategic planning
(stage 1 of the generic
increased
emphasis on
gic planning cycle) places
financial
goals. This
performance
company-wide
in the ways
in which
the
shift was also evident
statements
of
revised
their
mission,
companies
vision, and business principles. By the late 1990s,
to shareholder
return
pride of place was given
most
and superior profitability.
Second,
companies
reported
that the meetings
to discuss
business-level
plans (stage 3 of the generic planning
around
focused
had become
increasingly
targets (especially for operating profit
performance
and return on capital employed). Third, as attention
of perfor
shifted to the setting and monitoring
mance
targets, so the performance
planning pro
strategic
cycle)
cess
strategic planning
(stage 8 of the generic
became increasingly prominent.
Preoccupation with shareholder return was trans
lated into rising aspirations for ROCE. Belief in the
cycle)
think
efficacy of 'stretch goals' also influenced
and Pra
ing about the role of strategy. Hamel
halad's (1989, 1994) analysis of 'strategic intent'
and 'strategy as leverage and stretch' suggests that
to company's
per
strategy's biggest contribution
formance is not so much through superior strategic
decisions as in raising levels of aspiration and com
mitment
goals.
through setting challenging
on
and quan
emphasis
performance
Increasing
tification of performance
targets was accompanied
by less detailed strategic plans. This was most evi
that placed the biggest
dent among the companies
on
Exxon,
planning?BP,
performance
emphasis
and Texaco. These
argued that com
companies
to ambitious
mitments
presidents
by divisional
targets required their taking respon
performance
strategy. The more corporate
sibility for divisional
was involved
in influencing divisional
strategies,
the greater the erosion of divisional
responsibility
the corporate mes
and accountability.
Increasingly
sage was: 'Here's the performance we require. You
figure out how to deliver it.' This shift from strate
to performance
(supported
planning
gic control
was
incentives)
typically
by stronger performance
in terms of 'empow
by the companies
unit managers
and business
erment'?divisional
were accorded greater decision-making
discretion,
for
while becoming more individually accountable
described
results.13
13
The
principle
inevitably
Copyright ?
require
on performance
targets
tighter controls
over strategy
is consistent
controls
weaker
that
2003 John Wiley
&
Sons,
Ltd.
DISCUSSION
vs. process
for design
Implications
debate
on the strategic planning practices
evidence
of the major oil companies
suggests that the long
over
of rational design
debate
the
roles
running
in
and organizational
emergence
strategy formula
The
tion has been
the reality of
by misconceptions
planning. The vivid
perpetuated
of
car
strategic
by each side of the other's
presented
bear little
of strategy making
conceptualization
to the realities of strategic planning
resemblance
as pursued by large companies
during the late
icatures
1990s.
in structure with decision
hierarchical
Although
making power ultimately vested in the top manage
ment team and critical inputs provided by corpo
rate planning staff, the major oil companies'
strate
systems of the late 1990s had little
gic planning
in common with the highly bureaucratized,
top
caricatured by Henry Mintzberg.
down processes
a
In particular,
strategic planning was primarily
bottom-up process in which corporate management
provided direction, but primary inputs came from
the business units and operating divisions. How
ever, consistent with the process view of strategy
formation, it was clear that the strategies of the oil
majors were not created by their strategic planning
systems were mecha
systems. Strategic planning
for improving the quality of strategic deci
sions, for coordinating
strategic decision making,
and for driving performance
improvement. How
that fundamen
ever, the critical strategic decisions
and direction
tally affected the business portfolios
for the
of the companies
of development
were,
most part, taken outside formal systems of strategic
nisms
planning.
By disbanding
of
aspects
associated with
strategic
rational,
planning
top-down
strategy design and embracing adaptive, emergent
aspects of strategy making, none of the oil majors
to be deluded by Mintzberg's
(1994b:
appeared
In terms
'fallacies of strategic planning.'
110-112)
none of the strategic
of the 'fallacy of prediction,'
conventionally
planning
systems
relied
upon
precise
predictions
the tenets of control
theory. A system may be controlled
either by controlling
outputs or inputs, but not both. If corporate
taken at divisional
the strategic decisions
controls
level,
being
from those decisions;
it must accept the performance
resulting
if it is setting performance
targets, then the divisions
conversely,
with
must
be free to make
Strut.
needed
the decisions
Mgmt.
7.,
to reach
these
24: 491-517
targets.
(2003)
Strategie
In terms of the 'fal
of key external variables.
located pri
the
of
all
detachment,'
lacy
companies
with
line
managers.
mary strategy responsibilities
In terms of 'fallacy of formalization,'
all the com
reduced the formality of
panies had substantially
their planning procedures.
In short, the strategic planning
systems of the
as pro
could be described
international majors
cesses of 'planned emergence.'
The primary direc
the busi
tion of planning was bottom-up?from
ness units to the corporate headquarters?and
with
auton
substantial
business managers
exhibiting
At the
in strategy making.
omy and flexibility
same time, the structure of the planning
systems
con
established
allowed
corporate management
in the form of vision and
straints and guidelines
mission
statements, corporate initiatives, and per
In bringing together these
formance expectations.
bottom-up and top-down initiatives through dialog,
the systems displayed
debate, and compromise,
of
the
that
aspects
'generative planning model'
to
is
Liedtka
conducive
(2000) suggests
strategic
change.
To what extent do these systems of 'both incre
mental
(Goold,
learning and deliberate planning'
in adapting effec
1992: 169) assist the companies
and opportunities
of the
tively to the challenges
the contribution of strategic
1990s? Distinguishing
planning as distinct from other aspects of the com
is difficult. What
is
processes
panies' management
is
that
the
oil
however,
apparent,
compa
major
nies were exceptionally
successful
in adapting to
the challenges of the decade. Key strategic adjust
ments by the oil majors
included: rationalization
of downstream
in the
and chemical
businesses
face of chronic excess capacity (especially
through
upon
joint ventures and asset swaps), refocusing
core energy businesses,
into
upstream expansion
new geographical
areas (especially China, the For
mer Soviet Union and Latin America),
the adop
tion of new technologies
(e.g., deep-water
explo
3D seismic analysis,
ration, directional
drilling,
and environmentally
friendlier fuels), adaptation to
social and political pressures, and responsiveness
to the demands of owners (especially Elf and ENI's
transformation
from state to shareholder owner
ship). Perhaps the strongest evidence of the effec
tiveness of strategic adjustment lies in bottom-line
2003 John Wiley
&
Sons,
Table
5.
oil majors'
The
Environment
return
on equity,
513
1980s
1970s,
and 1990s
1970-79
1980-89
1990-98
on equity
Return
Shell Group
10.76
13.63
11.15
Exxon
Mobil
BP
ENI
Elf Aquitaine
13.87
15.30
11.57
12.08
9.07
Texaco
13.82
16.14
12.87
11.09
10.20
4.83
0.13
6.24
11.91
9.37
10.30
8.93
12.30
Amoco
11.57
Average
price of crude
oil (U.S. wellhead
at
purchase
price
17.1
14.56
28.6
12.54
17.4
constant 1996 $ per
barrel)
Source:
Fortune
Global
500
WTRG
;
Economics.
periods when oil prices were significantly
higher
(see Table 5).
as mechanisms
for aligning the com
However,
more
and
with
their
closely
panies
effectively
environment
and
their
changing
long-term
guiding
the effectiveness
of the companies'
development,
strategic planning
three respects:
may
also have
deteriorated
in
1. The
of planning horizons may
foreshortening
reflect a shift in top management
priority from
to
shortand
medium
long-term development
term performance goals. When
investment proj
ects have lives that extended to 40 years, strate
gic planning horizons of 4 and 5 years limited
to relate their cur
the potential for companies
rent resource allocations with their longer-term
vision.
2. The
transfer of strategic planning responsibili
ties from staff planners to line managers, while
and detach
resolving problems of formalization
ment, also entailed a loss of analytical capabil
of our
ity. One of the ancillary observations
use
was
the
limited
the
study
by
companies of
strategy concepts and tech
recently developed
the
niques. Despite
rapid diffusion of the tools
and techniques of strategic management
during
the 1980s and 1990s, few of these found appli
in the strategic planning processes of the
oil majors. Although
performance management
tools?shareholder
value analysis, EVA, bal
anced scorecards, and the like?had
achieved
cation
performance:
despite the low oil prices that pre
vailed for most of the 1990s, profitability
for most
of the companies was higher than during earlier
Copyright ?
in a Turbulent
Planning
Ltd.
Strut.
Mgmt.
J, 24: 491-517
(2003)
R. M.
514
Grant
the same was not appar
significant
uptake,
ent for concepts
and techniques
of strategy
For
fre
while
interviewees
analysis.
example,
to
advan
referred
'building competitive
quently
tage,' 'exploiting key strengths,' and 'leverag
only one of the com
ing core competences,'
panies (Amoco) had introduced any systematic
process for assessing and developing
organiza
It is possible
that the pri
tional capabilities.
targets
ority accorded to financial performance
in strategic planning squeezed out analysis. For
example, the reluctance of several of the majors
to introduce option valuation
into their capital
stemmed from the fear
procedures
budgeting
that adding greater complexity might result in
losing the discipline associated with unambigu
ous hurdle rates of return.
of the old
3. While
breaking down the rigidities
and
formalized
systems
embracing
planning
the com
processes,
emergent
strategy-making
little in terms of positive
panies had done
measures
to encourage
in strategy
innovation
in
If
changing
advantage
making.
competitive
markets depends critically upon strategic inno
and Stop
vation (Hamel, 2000; Baden-Fuller
sources
the
then
ford, 1994; Markides,
1998),
of strategic innovation need to be considered.
informal strategic planning
While
bottom-up,
the
offer
systems
potential for innovative strate
to
to
the
absence of impediments
emerge,
gies
such
innovation
sures to foster
Implications
is not
the
same
as
positive
mea
such innovation.
of
the literature on the implications
for strategic planning,
turbulence
of complexity
contribution
I noted the potential
a
the oppos
between
in
bridge
theory
providing
and
of
the
views
strategy
strategy-as-design
ing
camps. Several of the features of the
as-process
oil majors'
strategic planning systems are consis
of other management
the observations
of complexity
the
scholars regarding
implications
If
scaling fitness
theory for business management.
incremental
steps with
peaks requires combining
tent with
1999; Bein
leaps (Anderson,
major
hocker, 1999), performance-focused
strategic plan
strategic
ning may facilitate this goal. Bottom-up
to incremental
is conducive
adaptation.
planning
occasional
as Shell, BP, ENI,
Copyright ?
2003 John Wiley
strategic changes.
of the companies'
My characterization
strategic
as
ones
of 'planned emergence'
planning processes
to Brown
and Eisenhardt's
corresponds
closely
of
'semistructures':
the planning
(1997) concept
an
created
structure, a fixed
systems
organizational
time
and defined goals and responsi
schedule,
while
considerable
freedom for
bilities,
offering
and
initiative at
experimentation,
entrepreneurship,
the business
level. Two aspects of this 'semistruc
ture' character of strategic planning systems were
apparent. First, the strategy planning
particularly
the concept of simple rules
embodied
processes
of
which models
complex
adaptive systems sug
in predicting
effective
gest can be remarkably
and guiding the adaptation of nonhierarchical
sys
tems to changing environmental
conditions
(Gell
Mann,
1994; Eisenhardt and Sull, 2001). The strat
established
egy initiatives and guidelines
by cor
in the form of mission
and
porate management
cost
statements
for
and targets
vision
reduction,
reserve replacement,
ratios rep
and debt/equity
of constraints
and objec
resented a framework
tives that bounded and directed strategic choices.
Second, existence of rigid annual planning cycles
and the emphasis on breaking down longer-term
in the
strategic goals into short-term objectives
form of strategic milestones,
targets,
programmed
to Brown and Eisen
and scorecards corresponded
transition
hardt's
(1997) concept of time-paced
to
the future.14
from the present
of complexity
for the management
In discussing
environmental
Yet,
falls far short of tar
realized performance
the
natural
bias
towards incremental
geted level,
ism is supplanted by pressures
for more radical
when
and Texaco
demonstrated,
&
Sons,
Ltd.
Implications
multidivisional
for the theory
corporation
of the
and nature
of the characteristics
observations
multi
in large multiproduct,
of strategic planning
for
have
also
national
implications
corporations
multidivisional
the theory of the
organizations
as developed
(1975, 1985) based
by Williamson
(1962). The
upon empirical research of Chandler
form ('M-form')
of the multidivisional
efficiency
These
activities
in organizing
prod
spanning multiple
rests upon
uct markets
countries
and/or multiple
device and
both as a coordinating
its efficiency
14
Although
management,
is common
Strut.
to project
and Eisenhardt
apply the concept
the idea of linking change to a clear time schedule
to both.
Brown
Mgmt.
J.,
24: 491-517
(2003)
Strategie
In relation to
for goal alignment.
the oil
how
shows
the
study
goal alignment,
the
embodied
systems
majors'
strategic planning
the
The
M-form.
of
features
opportunism-limiting
linking of strategic planning authority with profit
has created a manage
and loss responsibilities
as a structure
ment
system
Williamson's
much
more
closely
aligned with
of 'effective multidivi
in relation to 'monitor
in a Turbulent
Planning
Environment
515
as a cor
the role of strategic planning
changed
increased
decen
control
system, permitting
porate
tralization of strategic decision making and greater
to external change.
adaptability and responsiveness
the
successful
adaptation of
apparently
Despite
to
uncertain
unstable,
systems
strategic planning
to the limited
the study pointed
environments,
upon the
impact of strategic planning processes
and
decisions.
Decentralization
of
strategic
quality
of
processes
informality
strategic planning
permit
ted access to a broader range of expertise, but there
was limited use of new tools and concepts of strate
principles
sionalization,'
especially
'awarding incentives,'
ing efficient performance,'
to high yield uses'
cash flows
and 'allocating
to efficiency
In
relation
1985:
284).
(Williamson,
is only partly con
the evidence
of coordination,
that the systems
gic analysis and little evidence
to strategic
of strategic planning were conducive
the existing
sistent with
theory of the M-form.
Williamson
draws upon Ashby's
theory of cyber
netics and Simon's theory of nearly-decomposable
to argue that the efficiency
of the M
systems
innovation.
for the study of
study has implications
The
features
of strategic
strategic management.
the
revealed
by
study suggest that much
planning
the 'strategy-as-rational
of the debate between
The
from its separation of high-frequency
strate
from low-frequency
decisions
(operating)
that
the
oil
decisions.
Given
majors'
strategic
gic
in the
is located as much
(if not more)
planning
as in corporate headquarters,
it appears
divisions
form derives
that the critical distinction between corporate and
activities
is based more upon realms of
divisional
the divisional
than
decision
knowledge
frequency:
on
focus
business
managers
strategy and corpo
rate managers
focus upon corporate strategy on the
need to be co-located
simple basis that decisions
with the knowledge
pertinent to these decisions.
and
design'
schools
'strategy-as-emergent-process'
of how
upon a misconception
in
works
the
real
world.
The
pro
strategic planning
cess of 'planned emergence'
evident in the compa
nies' strategic planning systems is consistent with
derived from complexity
management
principles
has
been
based
of complex adaptive sys
theory and observations
tems, and offers insights into the design principles
of the multidivisional
firm.
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