Corporate Strategy for Diversification Assignment | Get Homework Help

Diversification strategies raise a wide range of strategic management issues. For this assignment, select a KSA company whose strategy includes or included diversification and explore its motives, competitive advantage, and strategic planning based on the topics from Chapter 12 and the assigned reading. 1. Identify and provide company strategic details and consider what circumstances existed that motivated this company to diversify. 2. What mode of diversification did the company adopt? How does this relate to their resources and capabilities? 3. What are the benefits of diversification in this industry and how significant are they in the shape and growth of the industry? 4. Discuss the implications of the strategy chosen for the:  Organizational structure,  Management systems, and  Allocation of decision making within the diversified firm.Introduction and Objectives
Strategy is about achieving success. This chapter explains what strategy is and why it is important to
success, for both organizations and individuals. We will distinguish strategy from planning. Strategy is
not a detailed plan or program of instructions; it is a unifying theme that gives coherence and direction
to the actions and decisions of an individual or an organization.
The principal task of this chapter will be to introduce the basic framework for strategy analysis that
underlies this book. This framework comprises two components of strategy analysis: analysis of the
external environment of the firm (mainly industry analysis) and analysis of the internal environment
(primarily analysis of the firm’s resources and capabilities). We shall then examine what strategy is, how it
has developed over time, how to describe the strategy of a business enterprise, and how organizations
go about making strategy.
Since the purpose of strategy is to help us to win, we start by looking at the role of strategy in success.
By the time you have completed this chapter, you will be able to:
◆◆ Appreciate the contribution that strategy can make to successful performance and recognize
the essential components of an effective strategy.
◆◆ Comprehend the basic framework of strategy analysis that underlies this book.
◆◆ Recognize how strategic management has evolved over the past 60 years.
◆◆ Identify and describe the strategy of a business enterprise.
◆◆ Understand how strategy is made within organizations.
◆◆ Recognize the distinctive features of strategic management among not-for-profit organizations.
CHAPTER 1 The Concept of Strate gy 5
Nor can their success be attributed either exclusively or primarily to luck. Both have
experienced difficulties and setbacks at different stages of their careers. Central to their
success, however, has been their ability to respond to events—whether positive or negative—
with flexibility and clarity of direction.
My contention is that, common to both the 60-year successful reign of Queen Elizabeth
II and the short but stellar career of Lady Gaga, is the presence of a soundly formulated
and effectively implemented strategy. While these strategies did not exist as
explicit plans, for both Queen Elizabeth and Lady Gaga we can discern a consistency
of direction based upon clear goals and an ability to bend circumstances toward their
desired outcomes.
Elizabeth Windsor’s strategy as queen of the UK and the Commonwealth countries
is apparent in the relationship she has created between herself and her people. As
queen she is figurehead for the nation, an embodiment of its stability and continuity, a
symbol of British family and cultural life, and an exemplar of service and professional
dedication.
Lady Gaga’s remarkable success during 2008–18 reflects a career strategy that uses
music as a gateway to celebrity status, which she has built by combining the generic
tools of star creation—shock value, fashion leadership, and media presence—with a
uniquely differentiated image that has captured the attention and loyalty of teenagers
and young adults throughout the world.
What do these two examples tell us about the characteristics of a strategy that are
conducive to success? In both stories, four common factors stand out (Figure 1.1):
●● Goals that are consistent and long term: Both Queen Elizabeth and Lady
Gaga display a focused commitment to career goals that they have pursued
steadfastly.
●● Profound understanding of the competitive environment: The ways in
which both Elizabeth II and Lady Gaga define their roles and pursue their
careers reveal a deep and insightful appreciation of the external environments
in which they operate. Queen Elizabeth has been alert both to the
changing political environment in which the monarchy is situated and to the
mood and needs of the British people. Lady Gaga’s business model and strategic
positioning show a keen awareness of the changing economics of the
music business, the marketing potential of social networking, and the needs
of Generation Y.
●● Objective appraisal of resources: Both Queen Elizabeth and Lady Gaga have
been adept at recognizing and deploying the resources at their disposal, and
also building those resources—for the Queen, this has included her family, the
royal household, and the recipients of royal patronage; for Lady Gaga, it comprises
the creative talents of her Haus of Gaga.
●● Effective implementation: Without effective implementation, the best-laid strategies
are of little use. Critical to the success of Queen Elizabeth and Lady Gaga
has been their effectiveness coordinating and leading “ecosystems” of supportive
individuals and organizations.
These observations about the role of strategy in success can be made in relation
to most fields of human endeavor. Whether we look at warfare, chess, politics, sport,
or business, the success of individuals and organizations is seldom the outcome of a
6 PART I INTRODUCTION
purely random process. Nor is superiority in initial endowments of skills and resources
typically the determining factor. Strategies that build on these four elements almost
always play an influential role.
Look at the “high achievers” in any competitive area. Whether we review the
world’s political leaders, the CEOs of the Fortune 500, or our own circles of friends
and acquaintances, those who have achieved outstanding success in their careers
are seldom those who possessed the greatest innate abilities. Success has gone to
those who managed their careers most effectively, typically by combining these
four strategic factors. They are goal focused; their career goals have taken primacy
over the multitude of life’s other goals—friendship, love, leisure, knowledge,
spiritual fulfillment—which the majority of us spend most of our lives juggling and
reconciling. They know the environments within which they play and tend to be
fast learners in terms of recognizing the paths to advancement. They know themselves
well in terms of both strengths and weaknesses. Finally, they implement
STRATEGY CAPSULE 1.1
Queen Elizabeth II and the House of Windsor
By late 2018, Elizabeth Windsor had been queen for 66
years—longer than any of her predecessors.
At her birth on April 21, 1926, 45 other countries were
hereditary monarchies. By 2018, the forces of democracy,
modernity, and reform had reduced these to 26—mostly
small autocracies such as Bahrain, Qatar, Oman, Kuwait,
Bhutan, and Lesotho. Monarchies had also survived in
Denmark, Sweden, Norway, the Netherlands, and Belgium,
but these royal families had lost most of their
wealth and privileges.
By contrast, the British royal family retains considerable
wealth—the Queen’s personal net worth
is about $500 million—not including the $10 billion
worth of palaces and other real estate owned by the
nation but used by her and her family. Queen Elizabeth’s
formal status is head of state of the UK and 15
other Commonwealth countries (including Canada and
Australia), head of the Church of England, and head of
the British armed forces. Yet none of these positions
confers any decision-making power—her influence
comes from the informal role she has established for
herself. According to her website, she “has a less formal
role as Head of Nation” where she “acts as a focus for
national identity, unity and pride; gives a sense of stability
and continuity; officially recognises success and
excellence; and supports the ideal of voluntary service”
(www.royal.gov.uk).
How has Queen Elizabeth been able to retain not
just the formal position of the monarchy but also its
status, influence, and wealth despite so many challenges?
These include wrenching social and political
changes and the trials of leading such a famously
dysfunctional
family—including the failed marriages
of most of her children and the controversy that surrounded
the life and death of her daughter-in-law,
Diana, Princess of Wales.
At the heart of Elizabeth’s sustaining of the British
monarchy has been her single-minded devotion to what
she regards as her duties to the monarchy and to the
nation. In cultivating her role as leader of her nation, she
has preserved her political neutrality—even when she
has disagreed with her prime ministers (notably with
CHAPTER 1 The Concept of Strate gy 7
their career strategies with commitment, consistency, and determination. As the
management guru Peter Drucker observed: “we must learn how to be the CEO of
our own career.”1
There is a downside, however. Focusing on a single goal may lead to outstanding
success but may be matched by dismal failure in other areas of life. Many people who
have reached the pinnacles of their careers have led lives scarred by poor relationships
with friends and families and stunted personal development. These include Howard
Hughes and Jean Paul Getty in business, Richard Nixon and Joseph Stalin in politics,
Elvis Presley and Marilyn Monroe in entertainment, Tiger Woods and Boris Becker
in sport, and Bobby Fischer in chess. For most of us, personal fulfillment is likely to
require broad-based rather than narrowly focused goals.2
These same ingredients of successful strategies—clear goals, understanding the
competitive environment, resource appraisal, and effective implementation—form the
key components of our analysis of business strategy.
Margaret Thatcher’s “socially divisive” policies and Tony
Blair’s sending troops to Iraq and Afghanistan).
Through her outreach activities she promotes British
influence, British culture, and British values within the
wider world. She has made multiple visits to each of the
54 Commonwealth nations, including 27 to Canada and
16 to Australia.
The growing unacceptability of hereditary privilege
and the traditional British class system has required her
to reposition the royal family from being the leader of
the ruling class to embodying the nation as a whole. To
make her and her family more inclusive and less socially
stereotyped she has cultivated involvement with
popular culture, with ordinary people engaged in social
service and charitable work, and she has endorsed the
marriage of her grandsons William and Harry—the first
members of the royal family to marry outside the ranks
of the aristocracy.
Elizabeth has been adept at exploiting new media
for communicating both with her subjects and with a
wider global audience: initially through television, more
recently using the web, Twitter, and Facebook. Her press
and public relations staff comprises top professionals
who report to her private secretary.
While respecting tradition and protocol, she adapts
in the face of pressing circumstances. The death of her
daughter-in-law, Diana, created difficult tensions between
her responsibilities as mother and grandmother
and her need to show leadership to a grieving nation.
In responding to this crisis she recognized the need to
depart from established traditions.
Elizabeth has made effective use of the resources
available to her—especially the underlying desire of
the British people for continuity and their inherent
distrust of their political leaders. By positioning
herself
above the political fray and emphasizing her
lineage—including the prominent public roles of her
mother and her children and grandchildren—she
reinforces
the legitimacy of herself, her family, and the
institution they represent. She has also exploited her
powers of patronage, using her formal position to cultivate
informal relationships with both political and
cultural leaders.
The success of Elizabeth’s 66-year reign is indicated
by the popular support for her personally and for the
institution of the monarchy. Outside of Northern Ireland
and Quebec, republicanism is weak throughout the
British Commonwealth.
8 PART I INTRODUCTION
STRATEGY CAPSULE 1.2
Lady Gaga and the Haus of Gaga
Stefani Joanne Angelina Germanotta, better known as
Lady Gaga, is one of the most successful popular entertainers
of the 21st century. Since her first album, The
Fame, in 2008, all four of her albums have topped the Billboard
charts; she has also topped Forbes Celebrity 100 list,
and generated $560 million in ticket sales from her five
concert tours between 2009 and 2017.
Since dropping out of NYU’s Tisch School of the Arts
in 2005, Germanotta has shown total commitment to
advancing her musical career, first as a songwriter, and
then developing her Lady Gaga persona.
Gaga’s music is a catchy mix of pop and dance, well
suited to dance clubs and radio airplay. It features good
melodies, Gaga’s capable vocals, and her reflections on
society and life, but it is hardly exceptional or innovative:
music critic Simon Reynolds described it as: “ruthlessly
catchy, naughties pop glazed with Auto-Tune and undergirded
with R&B-ish beats.”
However, music is only one element in the Lady Gaga
phenomenon—her achievement is not so much as a
singer or songwriter as in establishing a persona which
transcends pop music. Like David Bowie and Madonna
before her, Lady Gaga is famous for being Lady Gaga.
To do this she has created a multimedia, multifaceted
offering that comprises multiple components including
music, visual appearance, newsworthy events, a distinctive
attitude and personality, and a set of values with
which fans can identify.
Key among these is visual impact and theatricality.
Her hit records are promoted by visually stunning music
videos that have won Grammy awards and broken
records for numbers of YouTube downloads. Most striking
of all has been Lady Gaga’s dress and overall appearance,
which have set new standards in eccentricity, innovation,
and impact. Individual outfits—her plastic bubble dress,
meat dress, and “decapitated-corpse dress”—together
with weird hair-dos, extravagant hats, and extreme footwear—
are as well-known as her hit songs. The range of
visual images she projects means that her every appearance
creates a buzz of anticipation.
Lady Gaga has developed a business model adapted
to the post-digital world of entertainment. Like Web 2.0
pioneers such as Facebook and Twitter, Gaga has followed
the model: first build market presence, and then
think about monetizing that presence. By 2012, her
YouTube views, Facebook likes, and Twitter followers
had made her the “most popular living musician online.”
Her networking with fans includes Gagaville, an interactive
game developed by Zynga, and The Backplane, a
music-
based social network.
Her emphasis on visual imagery takes account of the
means through which media popularity is converted
into revenues. While music royalties are important, concerts
are her primary revenue source. Other revenue
sources—endorsements, product placement in videos
and concerts, merchandizing deals, and media appearances—
also link closely with her visual presence.
A distinctive feature of Gaga’s market positioning
is her relationship with her fans. The devotion of her
fans—her “Little Monsters”—is based less on their desire
to emulate her look as upon empathy with her values
and attitudes: Gaga’s images are social statements of
non-conformity rather than fashion statements. In communicating
her experiences of alienation and bullying at
school and her values of individuality, sexual freedom,
and acceptance of differences, she has built a global fan
base of unusual loyalty and commitment. The sense of
belonging is reinforced by gestures and symbols such as
the “Monster Claw” greeting and the “Manifesto of Little
Monsters.” As “Mother Monster,” Gaga is spokesperson
and guru for this community.
Lady Gaga’s showmanship and theatricality are supported
by The Haus of Gaga, a creative workshop modeled
on Andy Warhol’s “Factory.” It comprises a creative director
who coordinates a team of choreographers, fashion
designers, hair stylists, photographers, set designers, songwriters,
musicians, and marketing professionals.
Sources: M. Sala, “The Strategy of Lady Gaga,” BSc thesis Bocconi
University, Milan, June 2011; http://www.biography.com/
people/lady-gaga-481598, accessed August 24, 2017.
CHAPTER 1 The Concept of Strate gy 9
The Basic Framework for Strategy Analysis
Figure 1.2 shows the basic framework for strategy analysis that we shall use throughout
the book. The four elements of a successful strategy shown in Figure 1.1 are recast
into two groups—the firm and the industry environment—with strategy forming a
link between the two. The firm embodies three of these elements: goals and values
(“simple, consistent, long-term goals”), resources and capabilities (“objective appraisal
of resources”), and structure and systems (“effective implementation”). The industry
environment embodies the fourth (“profound understanding of the competitive environment”)
and is defined by the firm’s relationships with competitors, customers, and
suppliers.
This view of strategy as a link between the firm and its industry environment has
close similarities with the widely used SWOT framework. However, as I explain in
Strategy Capsule 1.3, a two-way classification of internal and external forces is superior
to the four-way SWOT framework.
The task of business strategy, then, is to determine how the firm will deploy its
resources within its environment and so satisfy its long-term goals and how it will organize
itself to implement that strategy.
Profound
understanding of the
competitive environment
Objective
appraisal
of resources
EFFECTIVE IMPLEMENTATION
Clear, consistent,
long-term
goals
Successful
strategy
FIGURE 1.1 Common elements in successful strategies
STRATEGY
THE FIRM
• Goals and Values
• Resources and
Capabilities
• Structure and
Systems
THE INDUSTRY
ENVIRONMENT
• Competitors
• Customers
• Suppliers
FIGURE 1.2 The basic framework: Strategy as a link between the firm and its environment
10 PART I INTRODUCTION
Strategic Fit
Fundamental to this view of strategy as a link between the firm and its external environment
is the notion of strategic fit. This refers to the consistency of a firm’s strategy,
first, with the firm’s external environment and, second, with its internal environment,
especially with its goals and values and resources and capabilities. A major reason for
companies’ decline and failure is a strategy that lacks consistency with either the internal
or the external environment. The woes of the Italian airline, Alitalia, may be attributed to
a strategy that failed to respond to competition from budget airlines such as Ryanair and
EasyJet. Other companies struggle to align their strategies to their internal resources and
capabilities. A critical issue for Nintendo will be whether it possesses the financial and
technological resources to continue to compete head-to-head with Sony and Microsoft
in the market for video game consoles.
The concept of strategic fit also relates to the internal consistency among the different
elements of a firm’s strategy. An effective strategy is one in which all the decisions
and actions that make up the strategy are aligned with one another to create a consistent
strategic position and direction of development. This notion of internal fit is
central to Michael Porter’s conceptualization of the firm as an activity system. Porter
STRATEGY CAPSULE 1.3
What’s Wrong with SWOT?
Distinguishing between the external and the internal
environment of the firm is common to most approaches
to strategy analysis. The best-known and most widely
used of these is the “SWOT” framework, which classifies
the various influences on a firm’s strategy into four categories:
Strengths, Weaknesses, Opportunities, and
Threats. The first two—strengths and weaknesses—
relate to the internal environment of the firm, primarily its
resources and capabilities; the last two—opportunities
and threats—relate to the external environment.
Which is better, a two-way distinction between
internal and external influences or the four-way SWOT
taxonomy? The key issue is whether it is sensible and
worthwhile to classify internal factors into strengths
and weaknesses and external factors into opportunities
and threats. In practice, these distinctions are
problematic.
Was Zlatan Ibrahimovic a strength or a weakness for
Manchester United? As the team’s top scorer during the
2016–17 season and ranking among the world’s top-10
players, he was a strength. But as a player whose best
days were behind him and whose dominant presence
intimidated his younger team-mates, he was a weakness.
Is global warming a threat or an opportunity for the
world’s automobile producers? By encouraging higher
taxes on motor fuels and restrictions on car use, it is a threat.
By encouraging consumers to switch to fuel-efficient and
electric cars, it offers an opportunity for new sales.
The lesson here is that classifying external factors
into opportunities and threats, and internal factors into
strengths and weaknesses, is arbitrary. What is important
is to carefully identify the external and internal forces that
impact the firm, and then analyze their implications.
In this book, I will follow a simple two-way classification
of internal and external factors and avoid any premature
categorization into strengths or weaknesses, and opportunities
or threats.
Note: For more on SWOT see: T. Hill and R. Westbrook, “SWOT
Analysis: It’s Time for a Product Recall,” Long Range Planning, 30
(February 1997): 46–52; and M. Venzin, “SWOT Analysis: Such
a Waste of Time?” (February 2015) http://ideas.sdabocconi.it/
strategy/archives/3405.
CHAPTER 1 The Concept of Strate gy 11
states that “Strategy is the creation of a unique and differentiated position involving a
different set of activities.”3 The key is how these activities fit together to form a consistent,
mutually reinforcing system. Ryanair’s strategic position is as Europe’s lowest-
cost
airline providing no-frills flights to budget-conscious travelers. This is achieved by a
set of activities that fit together to support that positioning (Figure 1.3).
The concept of strategic fit is one component of a set of ideas known as
contingency theory. Contingency theory postulates that there is no single best
way of organizing or managing. The best way to design, manage, and lead an organization
depends upon circumstances—in particular, the characteristics of that organization’s
environment.4
A Brief History of Business Strategy
Origins and Military Antecedents
Enterprises need business strategies for much the same reason that armies need military
strategies—to give direction and purpose, to deploy resources in the most effective
manner, and to coordinate the decisions made by different individuals. Many
of the concepts and theories of business strategy have their antecedents in military
strategy. The term strategy derives from the Greek word strategia, meaning “generalship.”
However, the concept of strategy predates the Greeks: Sun Tzu’s classic, The Art
of War, from about 500 BC is regarded as the first treatise on strategy.5
Military strategy and business strategy share a number of common concepts and
principles, the most basic being the distinction between strategy and tactics. Strategy
is the overall plan for deploying resources to establish a favorable position; a tactic
is a scheme for a specific action. Whereas tactics are concerned with the maneuvers
necessary to win battles, strategy is concerned with winning the war. Strategic
decisions, whether in military or business spheres, share three common characteristics:
●● They are important.
●● They involve a significant commitment of resources.
●● They are not easily reversible.
Low operating costs
Secondary
airports
Point-to-point routes
25-min
turnaround
High aircraft
utilization
No-frills product
offering
High labor
productivity
Low prices;
separate charging
for additional
services
Single class; no
reserved seating
No baggage
transfer
Internet-only
check-in
Job
fle xibility
Direct
sales
only
Boeing
737s only
FIGURE 1.3 Ryanair’s activity system
12 PART I INTRODUCTION
Many of the principles of military strategy have been applied to business situations.
These include the relative strengths of offensive and defensive strategies; the merits of
outflanking over frontal assault; the roles of graduated responses to aggressive initiatives;
the benefits of surprise; and the benefits of deception, envelopment, escalation,
and attrition.6 At the same time, there are major differences between business competition
and military conflict. The objective of war is (usually) to defeat the enemy. The
purpose of business rivalry is seldom so aggressive: most business enterprises seek to
coexist with their rivals rather than to destroy them.
Despite parallels between military and business strategy, we lack a general theory
of strategy. The publication of Von Neumann and Morgenstern’s Theory of Games in
1944 gave rise to the hope that a general theory of competitive behavior would emerge.
Since then, game theory has revolutionized the study of competitive interaction, not
just in business but in politics, military studies, and international relations as well.
Yet, as we shall see in Chapter 4, game theory has achieved only limited success as a
broadly applicable general theory of strategy.7
From Corporate Planning to Strategic Management
The evolution of business strategy has been driven more by the practical needs of
business than by the development of theory. During the 1950s and 1960s, senior executives
experienced increasing difficulty in coordinating decisions and maintaining control
in companies that were growing in size and complexity. While new techniques of
discounted cash flow analysis allowed more rational choices over individual investment
projects, firms lacked systematic approaches to their long-term development. Corporate
planning (also known as long-term planning) was developed during the late-
1950s to serve this purpose. Macroeconomic forecasts provided the foundation for
the new corporate planning. The typical format was a five-year corporate planning
document that set goals and objectives, forecasted key economic trends (including
market demand, the company’s market share, revenue, costs, and margins), established
priorities for different products and business areas of the firm, and allocated capital
expenditures. The new techniques of corporate planning proved particularly useful for
guiding the diversification strategies that many large companies pursued during the
1960s.8 By the mid-1960s, most large US and European companies had set up corporate
planning departments. Strategy Capsule 1.4 provides an example of this formalized
corporate planning.
By the early 1980s, confidence in corporate planning had been severely shaken. Not
only did diversification fail to deliver the anticipated synergies, but the oil shocks of
1974 and 1979 ushered in a new era of macroeconomic instability, while Western companies
came under increasing pressure from Japanese, Korean, and Southeast Asian
competitors. Companies could no longer plan their investments and actions five years
ahead—they couldn’t forecast that far.
The result was a shift in emphasis from planning a company’s growth path to
positioning the company so that it could best exploit available opportunities for
profit. This transition from corporate planning to what became called strategic
management involved a focus on competition as the central characteristic of the
business environment and on performance maximization as the primary goal of
strategy.
This emphasis on strategy as a quest for performance directed attention to the
sources of profitability. At the end of the 1970s, Michael Porter pioneered the application
of industrial organization economics to analyzing the profit potential of different
CHAPTER 1 The Concept of Strate gy 13
industries and markets.9 Other studies examined how strategic variables—notably
market share—determined how profits were distributed between the firms within an
industry.10
During the 1990s, the focus of strategy analysis shifted from the sources of profit in
the external environment to the sources of profit within the firm. The resource-
based
view of the firm identified the resources and capabilities of the firm as its main
source of competitive advantage and the primary basis for formulating strategy.11 This
emphasis on internal resources and capabilities has encouraged firms to identify how
they are different from their competitors and to design strategies that exploit these
differences.
During the 21st century, new challenges have continued to shape the principles
and practice of strategy. Digital technologies have had a massive impact on
the competitive dynamics of many industries, creating winner-take-all markets
and standards wars.12 Disruptive technologies13 and accelerating rates of change
have meant that strategy has become less and less about plans and more about
creating options of the future,14 fostering strategic innovation,15 and seeking the
“blue oceans” of uncontested market space.16 The complexity of these challenges
has meant that being self-sufficient is no longer viable for most firms—alliances and
other forms of collaboration are an increasingly common feature of firms’ strategies.
The 2008–2009 financial crisis triggered closer scrutiny of purpose of business. Disillusion
with the excesses and unfairness of market capitalism has renewed interest in
corporate social responsibility, ethics, sustainability, and the legitimacy of profit as the
dominant goal of business.17
Figure 1.4 summarizes the main developments in strategic management since the
mid-20th century.
STRATEGY CAPSULE 1.4
Corporate Planning in a Large US Steel Company, 1965
The first step in developing long-range plans was to
forecast the product demand for future years. After calculating
the tonnage needed in each sales district to provide
the “target” fraction of the total forecast demand, the
optimal production level for each area was determined.
A computer program that incorporated the projected
demand, existing production capacity, freight costs, etc.
was used for this purpose.
When the optimum production rate in each area was
found, the additional facilities needed to produce the
desired tonnage were specified. Then, the capital costs
for the necessary equipment, buildings, and layout were
estimated by the chief engineer of the corporation and
various district engineers. Alternative plans for achieving
company goals were also developed for some areas,
and investment proposals were formulated after considering
the amount of available capital and the company
debt policy. The vice president who was responsible for
long-range planning recommended certain plans to the
president, and, after the top executives and the board
of directors reviewed alternative plans, they made the
necessary decisions about future activities.
Source: H. W. Henry, Long Range Planning Processes in 45
Industrial Companies (Englewood Cliffs, NJ: Prentice-Hall,
1967): 65.
14 PART I INTRODUCTION
1950 1960
• Operational budgeting
• DCF capital budgeting
Financial Budgeting:
1970
Corporate Planning:
• Corporate plans based on medium-term
economic forecasts
1980