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Wednesday February 19th, 2014

Planning Substitutes Error for Coincidence

The stock market depends on good news and the hope that even more can be earned, which means that the stock-oriented enterprises have to show better results all the time in order to live up to the expectations of the investors and to the promises of the fund managers. What you need for this are transparent strategies and an optimistic planning of results.

In order to increase the market share, you have to provide a constant push: be it in terms of turnover, profit, or buying out the competition. As opposed to this, deviations from the plan (warnings about potential profit) will make poor news and consequences will not be long in coming. The entrepreneur or manager must “pull a new parrot out of his hat” at all times, otherwise the investment experts will lose patience.

In the ’New Economy’, the importance of planning increased drastically and the vocabulary of the neo-liberal business concept introduced the respective terms as a fixed part of news and leadership methods: ”Business Plan, Strategy Planning, Performance, Shareholder Value, Profits, Annual Growth, Controlling“ and „Win-Win – Situation“.

While the long-term result planning and planning control mechanisms were basically restricted to huge enterprises, this concept now spreads more and more to the medium-sized enterprises.

For me as managing director of one branch of a medium-sized company, this was reason enough to critically investigate planning and its accompanying concepts: error and coincidence. I will shed a little light on the relationship between and the consequence of planning in small and medium-sized industrial firms and the increasing collection of data.

Planning

On Wikipedia, you can find about planning: ”Planning describes the human ability to mentally anticipate behavioural steps that seem necessary for achieving a goal. You get a plan, mostly in the form of a set of data structured according to time.“

Coincidence

On coincidence, Wikipedia can be cited as follows: ”If an individual event or the convergence of several events cannot be explained causally, then this is called coincidence. Potential causal explanations for events are mostly general rules or the desires of active persons. This means that the explanation of coincidence is the very absence of a (causal) explanation“.

Error

For error, someone wrote in Wikipedia: “Basically, error is a wrong assumption, statement, opinion or belief – with the party concerned being absolutely convinced that his or her statement(s) are/is correct.“
In Planning, you replace coincidence by error.

Planning in the course of history

The first groups of humans or hordes roamed the country looking for food, followed the herds of animals or explored the rest of the world seeking new sources of food. These migrations were triggered by lack of food and followed no strategy. Nothing is known or handed down about a long-term life planning.

Conversely, agriculture necessitates order and organization, i.e. planning.
After the first step towards founding settlements came the building of towns and countries, which is what we generally call civilization. Civilization will not be possible without planning.

The people in Mesopotamia and China were masters of early civilizations. We still admire their competence, for instance the Mesopotamian system of aqueducts and the Chinese Wall(s). Planning genius was displayed by the Romans, who gave us countless and sustainable proof of their strategic settlement policy. It is justifiable to say that the planned realization of a population census in the Roman Empire still influences the world today.

Planning became the cornerstone of our modern world.

Basically, planning is supposed to see to it that coincidences no longer happen.

You can have different opinions about when planning became part of business life. We know that the Sumerians wrote down business transactions on clay tablets. The Phoenicians, the merchants of antiquity, developed a simple alphabet and wrote it on papyrus, which was the determining progress for business planning. In my personal opinion, the double entry bookkeeping is the basis of modern management. In bookkeeping, there is no room for discrepancies, errors, coincidences or mistakes. A business transaction must be transparent and the balance must be precise if you want it to be the basis for a reliable planning process.

But any coincidence can change the plans.

A reliable bookkeeping is necessary, but outside influences, such as natural catastrophes, economic crises or the intensions of other parties can change or even destroy plans. It is the nightmare of every businessman that non-causal influences will make it impossible to reach the goals. But on the other hand, coincidence is also a motivation to plan anew or to correct the direction of your planning.

If you exaggerate, beneficence will become a menace.

Order controls rights and duties for group members and planning is the mental anticipation of future behaviour in order to reach a goal.

If you exaggerate order or discipline, then the unconditioned obedience will quickly become will-free dependence on others.

If you exaggerate planning, you will also get dependent and subordinate in order to reach a goal.

It is clear that the anticipation of future behaviour, planning and the secondary virtue of order, along with exaggeration, can easily cause an unpleasant controlling mechanism in our lives. To put it provocatively: the exaggeration, going over the top, is the menace coupled with planning.

Planned Economy

Thinking planned economy or centralized administration will automatically make you remember the times of the USSR and COMECON, where all decisions on work, capital, property ownership, production of goods and services were planned by a central office for a fixed time of five years.

However, the first ideas for the business concept of planned economy go back to ancient times. Plato himself summarized the planned economy of a state in his “state designs”. Jean Jacques Rousseau also dealt with planned economy in his “social contract”, before it was realized as a fixed part of Marxism.

During the cold war era, where ideologies clashed, the Western States foulmouthed the planned economy as an economy of shortages. They kept pointing out the plan derivations and shortages “in the East” and considered the social or free market economy superior. It is little known that Charles de Gaulle, too, introduced five-year plans in France after the end of the war. They ended in 1992. Well, the French central planning survived the end of the social planning economy by one year.

In this article, I do not wish to discuss how much sense state-controlled planning makes for the economy. It is a fact that we in our complex state structures and connections cannot really do without plans and business regulations, unless we are willing to accept a one-sided distribution of goods, capital and property. The argument about what the ideal planning of our global economy would be, however, is not yet resolved.

Planning in the New Economy

After the strategy comes the business plan, which is accompanied by reporting and controlling. This is what the successful multi-millionaires show us.
Can we transfer this model to smaller industrial units 1 : 1?

  • The answer might be yes if we are talking the production of serial parts the amount of which has been budgeted in advance with the customer and when precision, quality and a deadline are the relevant factors. A typical example is the automobile industry, which depends on component suppliers of various sizes.
  • You can also agree if we are talking consumable supplies, such as screws and tools.

For both instances, planning and control is absolutely necessary.

Plant engineering, where special solutions are required, is a totally different issue. After all, industrial engineering plants – unlike automobiles or canned goods – are not produced in a series. The sub-contractor, who is often a medium-sized enterprise, will have to adapt with his solutions.

Planning CANNOT replace the following qualities: communication, spontaneity, creativity and flexibility. These functions are demanded every day.

The setting of the course towards error: exaggeration.

Whenever a universal program for managing a company is introduced, grown and harmonious teams are destroyed, because they will not fit into the logic of the program. In sales and technological leadership, which formerly were often held by one person, communication, spontaneity, creativity and flexibility might be considerably impeded.

A deep-rooted structuring and re-distribution of tasks into units that can be planned will slow down the work because overlapping functions are hard to unite in the program.
This is how the way towards error is opened even wider, because structuring and strict adherence to tasks according to a master plan are exaggerated.

With the best of intents, errors are committed if adaptations are not possible, even though everything has been arranged according to the book and planning logic. Coincidence as a possible approach to solve the problem has never been taken into consideration.
Or, returning to the original topic: coincidence is replaced by error.

Examples

In this article, I will only take small and medium-sized industrial enterprises into consideration. More often than not, the processes in these companies from the sales contract to the production and distribution are organized in few departments. Sales and contracts were realized in one department, in close cooperation with construction. Acquisition was often separate, which was also true for preparation and production.

If these processes are realized by some software or system which takes care of all internal processes, then the overlapping tasks are cut down into individual steps as the logic of the software requires. The old departments have to be dissolved and new departments have to be created. Orders are cut up into many small steps. It is not unheard of for an order to first have to pass seven or eight stations before it can be approved. This is how three to four weeks can pass before a deadline can be approved. Said approval might well be far from the originally planned goal. This will cost the salespersons nerves. They will constantly have to execute time-consuming research in order to find out where exactly in the system the order is at a given time. Unfortunately, precise information will not be returned with pressing a button – as in view of the central data base you should assume.

Criticism

Time and again, I see company counsellors or new holders of leadership positions trying to change structures in specialized companies of small or medium size according to the model of the ’Big Ones’. Demolishing these old structures causes enormous friction. The planning costs a lot of energy and time if finally you want to present a modern and planned entrepreneurial structure on paper.

Systems generated for entrepreneurial leaders strictly demand data input which in old times was only available after the project had started and which was then entered flexibly. Overlapping competence is amputated, because the planning phase has to follow a structure determined by the software program and strictly distinguishing between the tasks. The individual tasks pass this structure as emails or program codes and not through personal communication.

During these planning games, it is not at all assured that the desired success, the slimming down of the process and the quicker processing, will be achieved. More often than not, the opposite is true. Caused by additional costs because of extra jobs created in planning, the total cost increases, which generated financial pressure. In order to cover the cost, you would have to increase the marginal return at the same ratio. This means you would soon need new products with a higher marge, but the planning process has its own rhythm and will hinder spontaneity – so this is a truly vicious circle.

It is an error to believe that planning can replace the knowledge in the technological or distribution sectors. Especially medium-sized companies need personalities versed technologically who are appreciated both by the customers and in the firm because of their competence and long years of experience. They need the support of a routine staff. You cannot replace such characteristics with the planning of structures, neither are those persons simply replaceable. I get the impression that the “new economy” planning staff has a different opinion on this. In fact, they seem to consider those ideas highly suspect, preferring the “renovator” with planning technology software. Expertise is not something that necessarily matters.

Claiming that software contaiining all business processes for small and medium-sized companies is an exaggeration is provocative.

So what can we do?

Medium-sized companies in plant engineering must remain flexible. Planning certainly has its place. There is no doubt that production must be efficient. The machines must work properly, but there must still be room for flexibility in exceptional cases.

It goes without saying that costs and results must be written down instantly, but who says this needs to be done by a huge number of control reports, monthly balance sheets, three-month balance sheets, sales input planning, controlling, three-year plans, distinguishing between products and numerous other tables for every individual problem.
Data control and tables are back-oriented, but the real challenge lies in the future. There must be time to philosophize about the future and to give coincidence a chance, instead of remaining erroneous.

I know our guest author well. For good reasons, he will not publish his name (RMD)

(Translated by EG)

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